"Concerns Over Recurrence of Construction Material Supply Imbalance... Need for Proactive Measures to Stabilize Prices"

Geonsanyeon "Proper Production and Inventory of Materials Must Be Secured"

[Asia Economy Reporter Noh Kyung-jo] Although demand for major construction materials is expected to increase this year compared to last year, there are concerns that supply-demand imbalances and consequent sharp price hikes may occur due to insufficient production support.

According to the report titled "Study on Changes in Demand for Major Construction Materials According to Construction Market Fluctuations" released on the 11th by the Korea Construction Industry Research Institute, production of key construction materials such as cement, ready-mixed concrete (Remicon), and rebar sharply decreases more than actual demand during economic downturns.

This is because material manufacturers strive to minimize losses during downturns by depleting inventory, and there are many factors leading to reduced production in preparation for rising raw material costs and a future contraction in construction volume. The problem arises at the immediate pre-recovery phase following the slump, where inventory shortages can combine to cause supply-demand imbalances.

View of the Dunchon Jugong Reconstruction Site in Gangdong-gu, Seoul (Olympic Park Foreon) / Photo by Hyunmin Kim kimhyun81@

Park Cheol-han, a research fellow at the Korea Construction Industry Research Institute, stated in the report, "Due to rapid interest rate hikes and external market uncertainties, the construction market in 2022-2023 is uncertain, and with rising raw material prices, material producers find it difficult to produce according to appropriate demand levels. As concerns over recession grow this year, it cannot be ruled out that producers will reduce production below demand levels following past patterns."

He added, "Although the volume of ongoing construction projects has not decreased, the volume of new project starts has declined since last year, making it highly likely that material producers will reduce production to adjust inventory."

He further warned, "If this trend continues, we could face material issues similar to the rebar shortage in the first half of 2021 and the sharp price increases in cement and Remicon caused by the Russia-Ukraine war last year within the next 2-3 years." At that time, the rebar shortage occurred due to a decrease in imports from China and excessive inventory reductions by domestic material producers.

The report estimates that demand for major construction materials this year will increase compared to last year by ▲cement 4.9?8.1%, ▲Remicon 2.7?8.8%, ▲aggregate 3.3?8.0%, and ▲rebar and steel bars 6.6?8.9%.

Research fellow Park emphasized, "Price volatility may increase due to supply-demand mismatches, so preemptive measures are needed to secure appropriate inventory levels and stabilize prices. From a mid- to long-term perspective, stable material supply is also necessary for the government’s previously announced plans to supply 2.7 million housing units and build 500,000 New:Home units."

Most importantly, he added, "If material supply issues occur, necessary funds may not be injected in a timely manner, causing delays in supply, which could lead to social costs such as rising housing prices. The government and private sector must work together to secure appropriate production and inventory to create a stable market environment."