Restructuring to re-energise South Korean market
South Korea's cement market took a further step towards consolidation this week when Asia Cement acquired Halla Cement for US$723m. This added 7.6Mta to Asia Cement's capacity and made it the third largest cement producer in the country.
Asia Cement fought off bids from three other interested companies to secure the former Lafarge business and initially six investors had expressed an interest to buy Halla Cement.
"Upon acquiring Halla Cement, Asia's share in the local market would jump to 20 per cent from current seven per cent, placing the merged entity at par with market leaders Ssangyong Cement Industrial Co and Hanil Cement Co," said Pulse News.
"The marriage is also expected to create synergy effects because Asia Cement's business is mainly positioned in the country's inland area whereas Halla Cement has factories in coastal regions."
Ownership changes
There are nine cement producers in South Korea, operating 35 cement facilities. There may yet be further consolidation if the oversupply conditions drive more cement producers into financial difficulty. The smallest producers left in the market are Korean Cement Co Ltd (formerly Koryo Cement), which is owned by the Gandong Group, Union Corporation with two integrated plants and Hankook Cement & Textile Company.
Merger and acquisition activity has been aggressive in this market in recent months with Hanil Cement and LK Investment Partners acquiring an 84.56 per cent share of Hyundai Cement for US$552.2m in July 2017. This added 5.5Mta of cement capacity to Hanil Cement.
However, the leading cement producer in South Korea is Ssangyong Cement, owned by Hanh & Co. The company has also been on the acquisition trail, buying Daehan Cement for US$232.8m in June 2017. This acquisition gave Ssangyong Cement a market share of 24 per cent. Hanh & Co also has a small stake in Korea Cement Co Ltd, another slag cement producer in the Ssangyong Cement portfolio.
Meanwhile, Japanese multinational Taiheiyo Cement has long had an influence on the South Korean market, but its stake in Ssangyong Cement was purchased by Hahn & Co in 2015 after failing to force through a bid to buy all the shares of the market leader.
Previously, Sampyo Cement and KBD Equity bought a 55 per cent in Tongyang Cement for US$595m in August 2015 and has since renamed Tongyang Cement as Sampyo Cement.
Falling demand, slag cement and price fixing
South Korea's cement production peaked in 2003 at around 59Mt, followed by a contraction to 43.7Mt by 2014. More recently, the market has enjoyed something of a revival, recovering to around 56Mt in 2016, according to The Global Cement Report, 12th Edition (GCR12).
Many of South Korea's cement manufacturers have found better sales through slag cement. Hanil Cement and Sampyo Cement are strong in this market, and Daehan Cement's product specialisation in this segment provided an important incentive for Ssangyong Cement to acquire Daehan Cement and increase its market share.
The industry has also needed to recover from fines imposed by the Fair Trade Commission, which charged six cement producers in January 2016 for price collusion as well as controlling output and market share in 2011.
Exports
Making the leap from exporters to overseas investment has not yet been a priority for the majority of producers in South Korea, but this may be changing. Export markets that have declined in recent years are also expected to start rising in the foreseeable future to more than 7Mt by 2018, according to GCR12.
Overseas investment
Growth opportunities in South Korea's market are limited as there is surplus cement capacity and the restructuring of the sector is desperately needed. While the big cement manufacturers have begun the process of consolidation, it is apparent that there are potentially more profitable ventures abroad at least for investors. Evergreen Holdings has already announced an US$300m investment in a new joint venture with Uzkurilishmaterialary for a cement plant in Karakalpakstan, Uzbekistan.
Meanwhile, LG International, a leading Korean general trading company, opted for investment in Maynmar’s cement sector by setting up Highland Cement Co with local partner Blue Diamond Cement. The new venture operates a 0.5Mta plant in Mandalay. In March 2017 the Gangdong group also announced its intention to go into the Myanmar market in the Yangon region.
