Construction on hold as material prices go through the roof
Builders are putting construction on hold due to skyrocketing costs.
Global rebar prices have been soaring since last year as China, the world's biggest steel exporter, imposed restrictions on steel exports. Cement prices rose at double-digit rates as Russia's invasion of Ukraine disrupted the supply of bituminous coal, which is used to make cement.
As construction is suspended throughout the country, concerns are rising over possible apartment supply problems.
Ssangyong C&E set the price of standard Portland cement at 98,000 won ($79) per ton, up 15.2 percent from the previous 78,800 won, with a federation of ready-mixed concrete suppliers on April 15.
The double-digit price jump came 8 months after the previous markup of 5.1 percent last July.
The trend was driven by increasing raw material costs. Bituminous coal, which is 40 percent of the production cost of cement, became 256 percent more expensive on year to 316,544 won in March.
Local cement makers depend entirely on imported bituminous coal, and of that, 75 percent was from Russia in 2021.
Last year's supply shortage of diesel exhaust fluid drove up prices of that product.
"It's the first time ever that the cement price rose by double digits," said a spokesperson for the federation of ready-mixed concrete suppliers.
As cement is more expensive, the price of ready-mixed concrete is expected to go up as well.
The price of rebar, steel bar used to reinforce concrete, is also going through the roof.
Scrap steel prices hit a record high this month, crossing the 700,000-won-per-ton threshold for the first time ever. According to data compiled by Construction Association of Korea, scrap steel prices stood at a monthly average of 694,000 won in March, up 63 percent on year, and the industry reported that the price continued to rise in April. The previous record was 680,000 won in 2008.
Building materials are 30 percent of construction cost. As the pressure builds, companies are mulling whether they should shut down construction sites.
On Tuesday, 52 frame builders — building companies specialized in frame structures — announced that they would halt all ongoing operations on Jeju Island and in the Honam region (Gwangju and the Jeolla provinces) starting Wednesday, and demanded an increase in down payments. They reached an agreement with contractors on the following day and resumed the construction, but the cost increase remains an issue for many companies.
"In most of the ongoing construction projects, the contracts were made last year or before that," said a spokesperson for Construction Association of Korea, adding that "material costs surged sharply over the past year, to the point that the subcontractors can no longer afford the materials."
Another industry insider said that companies are forced to carry out the constructions because "in private projects, it is difficult to adjust the initial budget written in the contract."
On March 28, the Construction Association of Korea requested the government take action.
The mounting pressure is likely to affect the real estate market, and an increasing number of projects are struggling with issues and disputes regarding construction expenses. As some of the construction companies postponed the sale of apartment complexes to after the incoming administration's inauguration to avoid regulations, construction prices may continue to trigger conflicts.
BY HAN EUN-HWA, SHIN HA-NEE [firstname.lastname@example.org]