Negotiations collapse between construction, cement, ready-mixed concrete companies
The rift deepened on Thursday between Korea’s construction, cement and ready-mixed concrete companies as a series of price negotiations ended in stalemate with all sides refusing to compromise.
Squeezed by soaring raw material costs, some 750 manufacturers of premixed concrete across the country halted production on Wednesday, saying they are only losing money by running the plants.
They demand that builders accept an 8 percent increase in prices of ready-mixed concrete to 60,500 won ($53.70) per cubic meter, and that cement suppliers withdraw a recent 11 percent price hike for their products or implement a more moderate markup.
Cement is a key component for concrete. Many local cement makers also produce ready-mixed concrete.
Two rounds of three-way talks convened by the government failed to break the impasse as builders and cement producers say the claims are beyond the mark.
Scores of construction projects are now at stake. Works slow down during the winter in general, but a lack of premixed concrete could deal a blow to crucial apartment redevelopment programs and government-led schemes including Sejong administrative city.
Trucks remain idle as a cement and ready-mixed concrete company in Gangnam in southern Seoul suspended its operations Thursday.(Ahn Hoon/The Korea Herald)
“Things are not working out because all sides are not willing to step back,” said Bae Jo-woong, head of the Korea Federation Ready-mixed Concrete Industry Cooperatives’ emergency committee and chief executive of Kookmin Remicon, said after the first meeting on Monday.
The current rates leave no margin and do not reflect last year’s sharp growth in costs of coal, sand, gravel and other raw materials, other officials at the industry guild say.
While cement manufacturers secured an 11 percent price hike to 75,000 won per ton starting Jan. 1, ready-mixed concrete makers were only allowed to raise less than 4 percent to 56,000 won per cubic meter, they add.
International coal prices shot up nearly four-fold to around $120 per ton since a year ago, according to E-trade Securities.
“It made sense to push up cement prices that had been exorbitantly cheap, so the recent increase will keep the cement firms afloat. But the problem now is that construction companies are resisting to raise ready-mixed concrete prices,” said Park Jong-rok, an analyst with the Seoul-based brokerage.
Builders, however, say that a further price rise will impose too much burden on them at a time when they are already grappling with a prolonged slump in the domestic construction and real estate markets.
“Construction firms should feel pressure because they know too well about the spikes in raw material costs,” said analyst Kang Seung-min with NH Investment & Securities.
“If they end up agreeing with a price increase, they’ll probably have to reflect that in home prices later on.”
With the Ministry of Knowledge Economy reopening negotiations on Friday, Park forecasts a high possibility of breakthrough.
“The government won’t let the situation become protracted,” he said.
Shares in cement and premixed concrete companies extended their winning streak to four days on Thursday on hopes for a bargain.
Eugene Corp. rallied 4.5 percent to close at 5,830 won. Sungshin Cement jumped 4.75 percent to 4,190 won, while HD Cement and Tongyang Cement & Energy inched up 3.54 percent and 3 percent each.
By Shin Hyon-hee (firstname.lastname@example.org)