Korean builders hurt by Ukraine crisis
A concrete mixer truck moves into a ready-mix concrete factory in Seoul, Monday. Yonhap
By Park Jae-hyuk
The escalating military conflict between Russia and Ukraine is dealing another severe blow to Korean construction companies, which are already suffering from skyrocketing prices of raw materials from Russia, according to industry officials, Wednesday.
Domestic builders have been warned about further difficulties in securing their construction materials and carrying out their projects in the two troubled countries, once the United States and EU begin imposing financial sanctions on Russia.
A group of subcontractors specializing in framework construction sent a letter to local builders last Friday, threatening to halt their work unless the builders promise by March 1 to raise their payments by 20 percent.
The warning came after a sharp rise in the price of rebar, as the international price of scrap metal used to produce rebar surpassed 600,000 won ($500) per ton recently for the first time in 13 years.
In order to prevent the shutdown of construction sites nationwide, the Korea Specialty Construction Association asked builders and subcontractors to participate in a meeting this Friday. However, it is still unclear whether they will reach an agreement on construction costs.
Suppliers of ready-mix concrete also informed builders that as of next month, prices will be 25 percent higher. They cited the global cement price, which rose to 93,000 won in January from 75,000 won a year earlier, due to the rapid hike in price of bituminous coal.
Korea has relied heavily on Russia's supply of raw materials for construction, such as aluminum, nickel and bituminous coal. Western countries' potential economic retaliations against Russia have therefore raised concerns about construction materials' additional price hikes.
“Considering the tensions between Russia and Ukraine, the price of bituminous coal has been 150 percent above last year's price,” Kiwoom Securities analyst Cho Young-hwan said in the report. “In the event of trade sanctions against Russia, cement suppliers will shift their costs onto construction firms.”
Industry experts expected local builders to shift their costs eventually onto consumers.
“It is difficult to rule out the possibility of delay in housing supplies and a hike in housing prices,” Korea Research Institute for Construction Policy researcher Lee Eun-hyung said.
According to the International Contractors Association of Korea, it is also inevitable for local builders to cease their projects in Russia and Ukraine, once Western nations tighten their sanctions against Russia following its military incursion.
On a related note, the Ministry of Land, Infrastructure and Transport hosted a meeting, Wednesday, to understand difficulties facing Korean construction firms doing business in Russia and Ukraine.
The ministry also noted that four Korean construction workers left Ukraine recently. It added that the latest conflict will have a limited impact on Korean builders in Russia, considering that their construction sites are located far from the Ukrainian border area.
Securities analysts, however, warned of geopolitical risks to Russia's Baltic project involving DL E&C and Samsung Engineering.
“Domestic construction firms are expected to have a lower chance of receiving orders in Russia,” Yuanta Securities analyst Kim Ki-ryong said in the report.
Korean construction firms doing business in Russia have maintained a cautious stance, keeping a close eye on the latest developments of the issue.
“We have yet to evacuate our workers in Russia, but we have continued monitoring the situation,” a spokesperson from one of the builders said.