하나은행 하나금융경영연구소

There’s a growing need to approach the industries from an industrial structure perspective, not an economic cycle standpoint.

● As downstream construction industries, cement, ready-mix concrete, and aggregate businesses are operated under the same industrial system, with their demand highly dependent on the construction business cycle.

● A decline in the construction business may pose a primary risk, prompting a lower operating rate, less revenue, fiercer sales competition, lower profitability, and a weak financial position to repay debts for downstream industries.

● Given that challenges faced by each industry are attributable to a transition into the mature phase of the construction business, rather than the business cycle, the risk factors should be examined from a structural perspective.

The key challenge is to cut back excess supply capacity by way of facility restructuring to better respond to potential economic slowdown.

● The cement industry may see growing uncertainty after having enjoyed stable oligopoly, owing to its earning power weakened by falling price and rising cost, as well as increasingly intense competition to secure more supply.

● With profitability falling amid rising fixed cost due to a lower operating rate, the ready-mix concrete industry is faced with a heavier burden, given fierce competition and low market concentration which places the industry in a weaker position in terms of supply control and price negotiation.

- Some businesses are moving toward consolidation to raise their market share as well as vertical integration to create channels to consume raw materials on their own.

● It is feared that the aggregate industry may suffer excess supply and loss of extraction sites owing to dredging work in four major rivers, and worse yet, its existence can be threatened, as the industry was excluded from joining the Four River Restoration Project.

- Furthermore, tighter regulation will make it harder for small businesses to stay afloat with little resources available for facility investment.

● Given that, the imminent challenge for the industries to enhance their earning power should be to cut back excess supply capacity by carrying out facility restructuring from a forward-looking standpoint, preparing for potential market contraction amid protracted recession.

A selective response strategy should be put in place to ensure financial strength and future survival.

● The cement businesses are less risky owing to the oligopoly market structure led by affiliates of large conglomerates and therefore better positioned to respond to cyclical variations, than the other two industries which are mostly small-scaled and subject to a high pressure from intense competition.

● A conservative approach is recommended for effective risk management, considering that it will be hard for companies whose financial strength has deteriorated due to years of loss to pursue business restructuring while weathering protracted recession.

● It is recommended to induce indebted companies to improve their financial structure and come up with strategies for future survival, and to monitor their progress to be factored into credit rating.