Volatility in the won's exchange rate against the U.S. dollar is rattling the cement industry. The import price of bituminous coal, used as a heat source for cement, has jumped more than 30% from the start of the year due to higher oil prices and a stronger dollar. Although cement companies face higher manufacturing costs, resistance from construction and ready-mix concrete firms makes it hard to pass those costs on to selling prices. With shipments already down on a construction slump, there are concerns that cement companies will shoulder the full burden of rising costs and see profitability deteriorate sharply.
According to the cement industry on the 2nd, rising oil prices and a sustained climb in the won-dollar exchange rate are increasing the burden of bituminous coal import prices for cement companies. Bituminous coal, used as a heat source in cement, accounts for 20% to 30% of cement manufacturing costs.
An official in the cement industry said, "Bituminous coal, which accounts for around 25% of cement costs, is entirely dependent on imports," and added, "Contract timing may differ by company, but when bituminous coal prices fluctuate with the rising won-dollar exchange rate, manufacturing costs inevitably increase."
The won-dollar exchange rate, which was in the 1,446-won range in early January this year, has recently climbed into the 1,500-won range. It surpassed 1,530 won on Mar. 31, marking a record high since the global financial crisis.
Not only bituminous coal but also significant volumes of urea and parts needed for equipment maintenance and repair are imported, further increasing the burden on the cement industry from the rising won-dollar exchange rate.
A representative of a cement company said, "Compared to early January this year, bituminous coal prices have risen about 30% due to higher oil prices and exchange-rate fluctuations," and added, "Urea needed for cement production is also now being sourced from Vietnam after China banned exports, so payment must be made in dollars, which has further increased the burden." Another cement company official noted, "Parts used for equipment maintenance and repair are also imported materials," adding, "We have no choice but to see our profit and loss affected by as much as the exchange-rate increase, so we are watching closely."
For cement companies, higher costs are a given, but reflecting them in selling prices is difficult. The construction slump makes it hard to negotiate price hikes with construction and ready-mix concrete firms. An industry official said, "Beyond exchange rates, there are many cost drivers such as higher electricity rates, but raising selling prices isn't easy," adding, "In practice, price increases are communicated by each company via official letters to ready-mix firms, but judging from precedent, the ready-mix industry strongly pushes back against higher prices, and construction companies also protest because higher material costs raise project expenses, creating a chain reaction of resistance."
Shipments themselves have declined, so it is not even a market where high volume and low margins are possible. The cement industry's domestic shipments fell below 36.5 million tons last year, breaking below the 40 million-ton mark for the first time in 36 years. It was the lowest level since the early 1990s. This year as well, with the construction market's recovery slow, shipments are expected to be similar to last year, making a rebound in conditions unlikely.
In the end, cement companies are expected to bear the losses stemming from these higher costs. According to 2025 business reports from each cement company, cement firms are projected to see losses increase by as much as several billion won due to the rising won-dollar exchange rate. Ssangyong C&E would see pre-tax net income fall by 1,317.42 million won if the won-dollar exchange rate rises 10%. Under the same conditions, ▲SAMPYO Cement 591.0 million won ▲Halla Cement Corp. 322.02 million won ▲Asia Cement 179.76 million won ▲Sungshin Cement 131.96 million won ▲Hanil Cement 53.37 million won in pre-tax net income would be reduced.
Another industry official said, "At this point, the only self-help measures are cutting fixed costs and improving labor efficiency," adding, "Companies with a parent group can at least try new businesses, but for those whose core business is solely cement, there is currently no solution."