Cement Firms Invest in Recycled Resources Treatment Facilities
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
At a time when cement prices and shipments are likely to increase, investment in recycled resource treatment facilities is an opportunity to change the negative perception of the cement industry. We expect sector earnings and valuations to improve in 2021.
Cost reduction possible on expanding investment in recycled resources treatment facilities
In the mid/long term, Ssangyong Cement, Sampyo Cement, and Asia Cement (which have all published sustainability reports) plan to raise the portion of recycled resources among their total fuel consumption (largely bituminous coal) to 45%. For reference, if one ton of bituminous coal is replaced with recycled resources, cement players will be W150,000 better off (W100,000 purchase cost for coal (as of 3Q20) + W30,000~40,000 recycled resource treatment fee). Ssangyong Cement completed its fourth recycled resource treatment facility in 2020, and all four units will be operational from 2021. Through these facilities, the firm’s bituminous coal use will drop 300,000 tons/pa, and its recycled resource treatment capacity will rise to 400,000 tons/year (replacement ratio of recycled resources of 25% or higher), resulting in cost savings of more than W60bn per year. Sampyo Cement is also expected to save more than W11bn in fuel costs by investing in additional recycled resource treatment facilities for two kilns in 2021. If recycled resource treatment facilities are expanded to all of the company’s kilns by 2025 (replacement ratio of 40% or more), its fuel costs would fall by at least W30bn.
Price hike visibility improving; full-fledged shipment increase likely
According to media reports, Halla Cement (in September) and Hanil-Hyundai Cement and others (in November) attempted to increase cement prices. As other companies recognize the need to raise cement prices, they are highly likely to participate in the move. Although cement prices were last raised in 2014, there are constant factors that lead to increased costs, such as environmental costs, transportation costs, and rising bituminous coal prices. Of note, given that most cement players want to raise prices, no companies are likely to lower prices in an attempt to gain market share.
As of September, 12-month cumulative construction orders in Korea amounted to W190tn, a record-high level. In the private construction sector, residential orders have risen the most, but orders related to the 3rd New City and the Korean New Deal have yet to emerge. In addition, with construction delays due to Covid-19 likely to ease in 4Q20 and 1H21, cement demand is estimated to increase. Rising cement prices and demand, and falling costs are expected to improve overall earnings.