Shares of cement makers firm up despite higher coal prices
Sul-Gi Lee
Mar 18, 2022 (Gmt+09:00)
Hanil Cement's factory in Danyang, North Chungcheong Province
Shares in South Korean cement suppliers have performed well in a rangebound market, despite soaring prices of bituminous coal, their raw material.
Concerns about the higher mineral price were outweighed by expectations that a supply shortage caused by the war in Ukraine should push the cement price sharply higher.
Korea Cement ended up 2.8% at 4,410 on Friday. The stock gained 24.75% this month, bucking an 11% decline in the Kosdaq market index during the same period.
Its domestic peers traded on the main bourse Kospi also rose sharply. Ssangyong C&E advanced 7.78% this month, with Hanil Cement up 7.46%. Asia Cement added 3.72%.
Their gains compared with a 0.29% rise in the Kospi index during the same period.
RELIANCE ON RUSSIAN COAL
South Korean cement makers import bituminous coal to meet all their needs.
Russia accounts for 75% of their imports of the mineral, the price of which has been soaring since Russia invaded Ukraine last month.
The price of bituminous coal more than doubled to $256 per ton as of March 11, compared with $125 at the end of last year, according to the Korea Mineral Resource Information Service.
Hanil Cement's concrete mixer truck at a local construction site As the Russia-Ukraine war shows no signs of ending, inventories at Korean cement makers are running low. That should justify their sharp price hikes, said eBest Investment Securities analyst Kim Seryeon.
"Supply problems with bituminous coal would lead to a supply shortage of cement in the first half of this year. This will make it easy for cement suppliers to pass the rising cost on to their sale prices."
In July of last year, domestic cement companies raised their product prices by 5.1%, their first price increase in seven years. In January of this year, they again bumped up their prices by 18%.
NEW HOME BUILDS
New housing supply should bolster demand for cement and cushion the sector from the impact of soaring coal prices.
Last year, the number of new housing units by building permits was up 19.2% on-year to 545,412 units, posting their first year-on-year growth in six years, according to the Ministry of Land, Infrastructure and Transport.
"This year, cement demand is expected to grow by 7.9% from last year to 53.2 million tons," said BNK Securities analyst Lee Sun-il.
"Alongside home supply growth, domestic demand for cement will expand sharply, offsetting the sharp price increase of bituminous coal."
However, NH Investment & Securities analyst Lee Min-jae voiced a note of caution, saying: "The sharp increase in bituminous coal price will continue to weigh on cement companies' valuations and earings."
"Considering upward cost pressures, cement prices will continue to rise in the second half of this year, but the key is how much they can pass the cost increase on to their product prices," Lee noted.