Middle East, the main market, remains at last year's level, Asia halves
Profitability uncertain due to rising interest rates and construction material prices
The overseas construction orders for the first half of this year in the domestic construction industry recorded the lowest level since 2007. This is interpreted as being due to the increased burden of construction costs caused by rising raw material prices and interest rate hikes worldwide, making it uncertain for construction companies to secure profitability. Cases of changing existing contract terms or even abandoning contracts altogether due to declining profitability have also occurred.
According to the Overseas Construction Comprehensive Information Service on the 15th, overseas construction orders amounted to $8.727 billion as of the 14th of this month. Comparing overseas order performance for the same period, this is the lowest since 2007. Even in 2019, when the annual overseas construction order amount was at its lowest level of $22.3 billion, the first half order amount was $9.4 billion, higher than this year.
Looking at orders by region, North America and the Pacific recorded $2.312 billion, a significant increase from $106 million in the same period last year, but Asia fell to $3.442 billion, about half of last year's $6.732 billion. Europe also dropped to $271 million, about 16% of last year's $1.632 billion for the same period. The main market, the Middle East, was $1.512 billion, similar to last year's $1.655 billion, while Latin America increased from $200 million to $600 million, and Latin America rose from $108 million to $543 million.
Since the launch of the new government, the Ministry of Land, Infrastructure and Transport has set an overseas construction order target of $50 billion annually and expressed ambitions to become one of the four major overseas construction powers. President Yoon Suk-yeol also emphasized overseas construction orders, stating that "exports and overseas construction orders are the driving force of the economy." Domestic construction companies are also turning their eyes overseas to seek survival as domestic real estate markets and housing projects have slowed down.
However, inflation and interest rates, which have hampered the domestic real estate market, are also acting as obstacles at overseas construction sites. Due to rising raw material prices and interest rate hikes, costs have increased, creating a market environment where it is difficult to gain actual profits even if orders are secured. For this reason, domestic construction companies are reportedly taking a conservative approach to overseas order competition.
An official from the Overseas Construction Association said, "In the past, there was a strong atmosphere of securing orders first and worrying later, but recently, companies are strategizing orders by calculating profits," adding, "Daewoo Engineering & Construction and Samsung Engineering have also abandoned order contracts or changed contract terms."
However, it is positive that the overseas order market, which had shrunk after the Ukraine war, is gradually improving. According to Shin Young Securities, the order volume in the MENA (Middle East and North Africa) region has increased to $35 billion this year, up from $24 billion in the same period last year.
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