[Planning]⑦ From the Swamp of Recession to the Clean Industry

History of the Cement Industry in Korea

In 2005, domestic cement demand is expected to decrease by 15.8% compared to the previous year. After peaking at 61.75 million tons in 1997, it has been on a continuous decline. It has fallen into the swamp of a prolonged recession.
[Photo by Yonhap News]

[Asia Economy Reporter Kim Jong-hwa]South Korea is the 12th largest cement-producing country in the world, with an annual production scale of over 60 million tons. In terms of cement technology, it has been recognized as an advanced cement nation since the 1980s, exporting production technology overseas. However, the public is not fully aware of the status of Korea's cement industry. Although it played a key role as a national infrastructure industry during the economic development period of the 1960s and 1970s, it became stigmatized as a polluting industry damaging the environment in the 2000s, causing it to fall out of public interest. Recently, the cement industry is undergoing a transition to an eco-friendly industry. This series will reexamine the history of Korea's cement industry, which is transforming from an ugly duckling into a swan, over 10 installments.[Editor's note]

Entering the millennium in the 2000s, the cement industry overcame the critical moment of the IMF (International Monetary Fund) foreign exchange crisis through painful restructuring and asset sales, but there was still a long way to go to restore its former glory.

In particular, in the mid-2000s, the cement industry recorded its worst performance due to a combination of a construction market slump and price competition among some companies. At that time, the government's strong real estate regulation policies led to a reduction in housing supply and a downturn in the construction market, triggering bankruptcies among construction companies, and related industries such as cement fell into a chain recession.

In 2005, domestic cement demand totaled 46.285 million tons, a decrease of 15.8%, or about 8.66 million tons, compared to 2004. This was similar to the level during the foreign exchange crisis in 1998. After peaking at 61.75 million tons in 1997, domestic cement demand steadily declined, eventually dropping to 43.99 million tons in 2012.

Considering that the total production capacity of the cement industry exceeded 60 million tons, about 30-40% of production facilities were idle at that time. Cement companies began to reduce losses by selling their headquarters buildings or disposing of held securities to compensate for poor performance. However, even these measures reached their limits.

The appearance of the cement factory before being converted to eco-friendly facilities.
[Photo by Asia Economy DB]

To make matters worse, China, which supplied 70% of the bituminous coal needed by Korea's cement industry, reduced export volumes as domestic bituminous coal consumption increased and implemented a bituminous coal export ban starting in January 2008. Although the export ban was lifted two months later in March 2008, the rise in bituminous coal prices became a problem.

Moreover, an additional 35% reduction was planned for 2009. Cement companies, which are representative energy-intensive industries, found themselves in a desperate situation. The import price of bituminous coal rose from $35 per ton in 2003 to an average of $70 per ton in 2006, then soared to $195 per ton in August 2008.

This was due to several supply and demand setbacks, including prolonged shipping delays caused by floods in Australia, the largest bituminous coal exporter, shortages in Russia, heavy snow in Canada, and heavy rains in Indonesia. Although cement prices increased by about 10% in early 2009, it was far from enough to offset the increased cost burden.

In fact, the price of bagged cement at that time was only 3,250 won, less than the price of a bowl of jajangmyeon. With the construction market slump and rising bituminous coal prices increasing cost burdens, the insolvency of its subsidiary, Sungwoo General Construction, became the decisive cause for Hyundai Cement entering workout. Demand continued to decline while raw material costs soared annually, solidifying a deficit structure. Drastic measures to revive the company through cost reductions in energy and environmental improvements were necessary.

The cement industry uses a large amount of energy, with energy costs such as fuel and electricity accounting for over 60% of manufacturing costs. Therefore, reducing energy costs was a critical issue for cement companies' survival. Additionally, the energy used in cement manufacturing generates greenhouse gases that impact the environment, so efforts to save energy and reduce greenhouse gases had to be pursued simultaneously.

The appearance of the cement factory after being replaced with eco-friendly facilities.
[Photo by Asia Economy DB]

By 2008, the government recognized that environmental protection and economic development must be achieved together as a major global challenge and proposed "Low Carbon Green Growth." The cement industry had already shown its commitment to environmental management by voluntarily resolving to reduce greenhouse gases in October 2007, the first in the industrial sector.

Accordingly, the industry prepared greenhouse gas inventory reports and conducted reduction projects based on the established inventories, while also carrying out internal and external education related to climate change, installing waste heat power generation facilities, substituting fossil fuels with recycled fuels, and engaging in nature conservation activities with local communities, leading environmental management efforts.

In particular, waste heat power generation, adopted by most companies, allowed them to generate electricity directly from the high-temperature exhaust gases produced during cement manufacturing, achieving both energy savings and greenhouse gas reductions simultaneously.

A representative from the Korea Cement Association explained, "The reason the industry, which suffered profitability deterioration due to the construction market slump, unanimously invested in waste heat power generation, which requires at least hundreds of billions of won, was because it was a win-win project that complied with eco-friendly corporate ethics while providing long-term profitability." He added, "These environmental improvement efforts were carried out industry-wide, with massive investments made to equip excellent environmental preservation systems, including large-scale dust collection facilities."