Weak construction sector hits South Korean cement

South Korea’s cement industry remains in the dumps as the government’s anti-speculation measures have led to a drastic contraction in construction business, industry sources said Monday. Since October 2003, the government has announced a series of measures to curb soaring housing and land prices, throwing cold water on the construction sector.

According to the sources, the nation’s cement production is expected to plunge to 47Mt this year from 54.3Mt in 2004 and a peak of 60Mt in 2003. In the first nine months of this year, cement output came to a mere 34.9Mt.

The sharp drop in output was attributed to the government’s crackdown on real estate speculation, which resulted in weak construction activity and a subsequent fall in demand for cement. "The government’s anti-speculation drive has dealt an additional blow to the cement industry, which is suffering from the slumping economy and flagging business sentiment," a market watcher said, declining to be named.

The government measures have exacerbated the construction market’s slump, with orders dropping quickly, he said. Local builders saw their orders tumble 21.3 percent in 2004 from the previous year, according to the sources.  To make matters worse, local cement producers are losing their shares of the market to cheaper imports, mostly from China, they said. Cement imports reached 3.4Mt last year, a six-fold increase from 2001. Chinese cement fetches 63,000 won (US$59.5) per ton, 10,000 won lower than domestic products.

The prolonged slump of the construction sector and increased imports of cement have sent sales of major domestic makers plunging. In the first half of this year, South Korea’s top three cement makers – Ssangyong Cement Industrial Co., Tong Yang Cement and Sungshin Cement Co. – saw their sales drop around 10 per cent from a year earlier. Last year, sales by the companies fell more than 10 per cent from the previous year.

The cement makers said their business is unlikely to turn around any time soon due to the fallout from another set of government anti-speculation steps unveiled in August. "The latest measures are feared to cause the current slump to drag on till the first half of next year," said an official at Ssangyong Cement Industrial Co., the nation’s largest cement producer.