Ready-Mix Concrete Industry Faces Challenges Since Early Year

Increased Transportation Costs Burden Amid Cement Industry Price Negotiation Setbacks
Shipment Volume Plummets Due to Heavy Snow and Cold Waves... Government Housing Policy Demand Offers Hope

Stopped ready-mix concrete trucks. Due to the recession and frequent cold waves and heavy snowfall since the beginning of the year, shipments have significantly decreased compared to previous years.
[Photo by Yonhap News]

[Asia Economy Reporter Kim Jong-hwa] The ready-mixed concrete (remicon) industry is experiencing a gloomy start to the year. The business outlook is bleak due to the COVID-19 pandemic, compounded by adverse factors such as price hikes with the cement industry, increased transportation costs, and reduced shipment volumes caused by heavy snowfall and cold waves.

On the 21st, the remicon industry forecasted, "This year will be more difficult than any other." First, shipment volumes are noticeably declining. In the past two years, warm weather prevented a significant drop in first-quarter shipments, but this year, shipments have nearly halted due to the cold wave and heavy snow. An industry insider said, "January and February are traditionally off-seasons, so we usually don't worry much about shipment volumes, but this year it seems to be only half of last year's, which is concerning," showing a worried expression.

In fact, for Company A, a leader in the industry, remicon shipment volume as of the 19th is at 90% of last year's level and 65% of 2019's level. For Company B, during the same period, shipment volume dropped to 85% of last year's level and 60% of 2019's level.

Price negotiations with the cement industry are also a negative factor. Cement companies are proposing price increases ranging from 75,000 KRW to a maximum of 82,000 KRW per ton, while remicon companies argue that this demand is excessive since the price increase of bituminous coal, which accounts for 30% of cement costs, has not been significant.

The cement industry, having frozen the official cement price at 75,000 KRW per ton since June 2014 for seven years, is strongly determined to raise prices this time, making negotiations difficult. An industry insider said, "Cement companies continue to send price increase notices to remicon companies," adding, "Price increases seem inevitable. Ultimately, negotiations over the extent of the increase will take place."

Cement prices account for as much as 40% of the cost. Moreover, last year’s negotiations with remicon vehicle subcontractors resulted in a roughly 10% increase in transportation costs, which is also a significant burden. Since transportation costs make up about 15-20% of the cost, this year the industry is starting off bearing a 55-60% cost burden.

Ultimately, the only hope is the government. The industry is pinning its hopes on President Moon Jae-in’s statement at the New Year press conference on the 18th, where he said, "We will significantly increase supply beyond market expectations through public land development, station area development, and bold development of new housing sites." There is anticipation that if the government acknowledges past real estate policy failures and proceeds with large-scale housing supply projects such as the 3rd New Towns, remicon demand will surge.

However, it is uncertain whether supply will progress as quickly as expected. Due to COVID-19, the government’s supply efforts are prioritizing small business owners whose livelihoods are threatened, pushing housing market stimulus and social overhead capital (SOC) investments to a lower priority.

An industry insider said, "Although COVID-19 is a factor, it seems that this rain-fed business, which is inevitably affected by policy changes and the domestic housing market, has reached its limit," adding, "It is frustrating that we have no choice but to rely on government policy."