Sampyo Notifies 11.7% Price Increase to Ready-Mix Concrete Industry
Other 6 Companies Also Considering Increase, "Additional Hike Inevitable"
Ready-Mix Concrete Industry: "If Cement Prices Rise, Related Prices All Go Up... It's Too Much"
[Asia Economy Reporter Kim Jong-hwa] Cement prices will rise again after six months.
According to the cement industry on the 1st, Sampyo Cement sent an official letter on the 28th of last month to about 100 ready-mixed concrete companies and other major clients, stating that the price of Ordinary Portland Cement (OPC) will be raised from 94,000 KRW to 105,000 KRW per ton starting from shipments in September, an 11.7% increase.
Notably, Sampyo Cement announced that it will not engage in further negotiations to adjust the price increase rate with the ready-mixed concrete industry. Typically, the cement industry announces a price increase plan and then negotiates with the ready-mixed concrete industry to adjust the increase rate, but this time they intend to forgo that procedure.
In February, Ssangyong C&E notified customers, including the ready-mixed concrete industry, of an 18% price increase plan for cement, but after a month-long negotiation with the ready-mixed concrete industry, the increase rate was lowered to 13%. The other six companies also sequentially announced price increase plans ranging from 17% to 19% within a month, and after individual negotiations, the average price increase was about 15%.
Regarding this, a Sampyo Cement official stated, "The management environment is deteriorating further due to the surge in prices of thermal coal and major raw materials, increased logistics costs including shipping fees caused by rising oil prices, and rising electricity costs," adding, "Therefore, we have been forced to raise cement supply prices, and we will do our best to produce high-quality products and ensure stable supply in the future."
The surge in thermal coal prices, which accounts for about 40% of cement production costs, is the main cause of the worsening management situation for cement companies. The price of thermal coal traded at an average of 137 USD per ton last year (based on Australian Newcastle 6000 kcal/t) but soared to 419 USD as of the 28th of last month, more than tripling. The won-dollar exchange rate also rose from 1,190 KRW at the end of last year to 1,304 KRW as of the 1st, increasing the actual cost burden felt by cement companies, according to the cement industry.
The situation in the cement industry appears serious. Ssangyong C&E, the industry leader, entered an emergency management system company-wide on the 26th of last month. Ssangyong C&E considers the recent management situation as a complex crisis both internally and externally, caused by the sharp rise in prices of major raw materials such as thermal coal, increased logistics costs due to the truck safety freight system, rising electricity costs, interest rate hikes and exchange rate increases, and major accidents at production plants.
Lee Hyun-jun, president of Ssangyong C&E, upon entering the emergency management system, urged employees, "Although we should focus on resolving the management crisis triggered by changes in external management conditions, our company is facing a difficult situation where we must first address internal issues such as measures to prevent recurrence of major accidents and equipment efficiency," adding, "Please concentrate all capabilities on the emergency management system to overcome the current crisis."
Given this situation, additional price increases by Ssangyong C&E seem inevitable. The other five companies are also reportedly considering additional increases. Hanil Cement, Hanil Hyundai Cement, Halla Cement, Asia Cement, and Sungshin Cement are also reviewing price increases and are reportedly deliberating on the timing and extent of the increases.
A cement industry official said, "The results of the meeting scheduled on the 4th with the ready-mixed concrete industry and the Construction Materials Workers' Council will have some influence, but additional increases seem unavoidable," adding, "We are currently considering the timing and extent of the increase."
In response, the ready-mixed concrete industry expressed strong opposition. A ready-mixed concrete industry official said, "When cement prices rise, all related prices go up. It is frustrating that we have to negotiate price increases for raw materials and transportation fees continuously from the beginning to the end of this year," adding, "We need to maintain an appropriate level, but raising prices again after just six months is excessive."
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