[Inside Chodong] Shadows Over the Cement Industry: Lafarge and Chinese Companies

Companies and business environments are constantly changing. According to the industry life cycle theory, industries go through stages like 'emergence, growth, maturity, and decline,' much like living organisms. Although companies relentlessly push forward and strive for growth, dismissing decline as merely drifting like dead fish or going with the flow, stories of companies facing decline are common.

There was a French cement company called Lafarge. In 2015, the world's number one Swiss company Holcim (Holderbank Cement) merged with the number two Lafarge to form the giant 'LafargeHolcim,' but antitrust issues related to the merger persisted. In 2021, it was revealed that during the Syrian civil war in the 2010s, Lafarge had paid terrorist groups such as ISIS to maintain stable operations at its local plant. The French Supreme Court found the company guilty, and that same year, only the Holcim name remained while Lafarge disappeared from the company name.

Lafarge employed a strategy of market penetration through low pricing, which deteriorated profitability and dominated the market in that country, and South Korea was no exception. In 2000, Lafarge acquired Hanla Cement, the fourth-largest domestic company under the bankrupt Hanla Group, and established Lafarge Hanla Cement. Lafarge Hanla increased its market share from 9.9% in 2004 to 13.9% in 2006 through aggressive low pricing, rising to become the second-largest domestic player at one point.

Due to countermeasures from Ssangyong Cement and Sungshin Cement, domestic cement prices dropped from 63,500 KRW per ton to 46,000 KRW per ton. The cutthroat competition shrank the industry, reducing annual shipments to below 50 million tons. In 2007, Fr?d?ric de Rougemont, the new CEO of Lafarge Hanla, stated upon his appointment that "the strategy of leading price cuts to increase market share has effectively failed," calming the chicken game, but domestic companies had already suffered significant damage. In 2016, Lafarge exited the domestic market by selling off all overseas operations except those where it held the number one market share.

Recently, Chinese companies have been eyeing opportunities in the space left by Lafarge's departure. On September 25, a Chinese cement industry official visiting Korea expressed interest in entering the Korean market, saying, "Please introduce Korean companies that might be up for sale," and described the Korean market as very attractive.

The Chinese cement industry has about 800 companies operating 1,800 kilns, which is 50 times the scale of Korea's 9 companies with 36 kilns. Last year, China's cement production was 2.033 billion tons, accounting for 50.2% of global production. However, due to a domestic construction downturn, the internal market has sharply declined, prompting attempts to expand overseas through low-price dumping.

On the 2nd of last month, the Ministry of Land, Infrastructure and Transport announced a 'Construction Cost Stabilization Plan' that includes support for the distribution of Chinese cement. Although cement accounts for just over 2% of total construction costs, the government is allowing imports of Chinese cement. How much effect will this have on lowering construction costs and housing prices? The government is effectively opening a lifeline for Chinese cement struggling to survive.

According to the Cement Association, this year's total domestic shipments are 44 million tons, less than the 44.6 million tons during the 1998 financial crisis. Electricity costs have also risen by 10.2%, from 165.8 KRW per kWh to 182.7 KRW, increasing the manufacturing cost share from 20% to 30%, adding to the burden. Cement companies are facing the double hardship of sluggish sales and rising costs. The shadow over the domestic cement industry has grown longer and darker.