Cement industry set to increase prices on electricity rate hikes

[Source : Hanil Cement Co.]

South Korean cement companies are considering a further increase in prices this year as electricity fees are set to rise the most in 42 years this year and bituminous coal prices remain high.

Cement companies are expected to post losses this year despite raising product prices twice last year because the industry is one of the biggest consumers of electricity. But a huge backlash is expected from the ready-mixed concrete business and other companies highly dependent on cement.

Manufacturing cement is expected to cost about 7,600 won ($5.98) more per ton as Korea Electric Power Corp. (KEPCO) announced it would increase electricity rates by 13.1 won per kwh from Jan. 1 this year, according to sources from the cement industry Wednesday.

“We estimate that each company will have to bear an additional cost of 9 to 10 billion won due to the higher electricity fees,” according to an industry source. The industry needs another price increase of up to 16,000 won per ton to accommodate higher bituminous coal prices, rising logistics costs fueled by oil price hikes and freight rate system that guarantees minimum levies for truckers, as well as the rise in consignment fees, which were all not factored in the last year’s price hike.

The cement price, based on the average selling price of seven companies, initially rose to 92,400 won per ton in February last year from 78,800 won a ton in July 2021 and again to 105,400 won in the second half. This price increase came as the cement business faced greater cost burdens from rising prices from bituminous coal, electricity and logistics.

Despite a series of price hikes, cement manufacturers have performed poorly. Ssangyong C&E Co.’s operating profit in the third quarter of last year was 88.6 billion won, down 50.9% year on year. During the same period, the operating profit at Hanil Cement Co. dropped 21.5 percent to 85.5 billion won from 108.9 billion won.

Management challenges have worsened with disrupted cement shipments caused by the cargo union’s strikes last year. The cement business suffered a total of 225.6 billion won in damages from two strikes by truck drivers in June and November last year, according to the Korea Cement Association.