South Korea’s tower crane suppliers are benefiting from an upturn in the construction industry that has boosted sales of cranes along with other construction equipment and materials during the past 18 months. After many construction firms and equipment rental companies sold surplus tower cranes to overseas buyers in the wake of the 1997 economic crisis, the present upswing in the construction industry has resulted in a large number of tower cranes being imported and once again becoming a familiar sight at work around the country.
Local manufacturers include a new player, HanKook Tower Cranes (HKTC). HKTC began in 2002 by taking over the business of Hanyang, which had gone bankrupt during the economic crisis. In June 2003 HKTC started to manufacture three models based on old Liebherr designs: the 290HC, the 290HC-H and the 154HC. HKTC is producing about 100 units in its first year, according to reports.
Most of the imports come from Europe, and specifically Liebherr, Potain and Comedil. Liebherr is represented by Gintex Korea Co Ltd, which brought in about 90 new and used Liebherr tower cranes between May 2002 and November 2003, says Theresa Kim, executive director for planning and finance, out of total imports from Europe that she estimates at about 200 units. It is likely that fewer than half of these were new cranes.
‘The 1997 financial crisis was sudden,’ Theresa Kim recalls. ‘Then for four years there was nothing in the construction business and customers sold their tower cranes abroad. But at the end of 2001 we saw a little increase in construction. We started marketing 12t tower cranes again from the beginning of 2002. We have supplied more than 40 customers with 12t tower cranes, ’Theresa Kim says. (Gintex also sells Liebherr mobile cranes and recently deliveries include a 750t capacity LR 1750 crawler and five all terrains up to 100t capacity to shipbuilding yards.)
Potain is also active in Korea, represented by Korea International Ltd (KIL). Its best selling crane is the MC 310, which also has a maximum capacity of 12t and can lift 3.2t at the end of its 70m jib. ‘The older K30/30C units, which have similar lifting characteristics to the MC 310, have also been popular,’ says KIL managing director Jong Tae Kim.
There is a reason why this size is popular. Jong Tae Kim explains:
‘In South Korea apartment complexes tend to comprise four towers. Contractors like to be able to build these blocks using only one tower crane. They like to position one crane at the centre of all construction work, in most cases they need a jib of around 70m to service all four towers. The heaviest forms used in construction will weigh 3t to 4t.’
The customer base is predominantly rental specialists – equipment rental has taken off in Korea in the past five years or so. ‘More than 90% of our sales go to rental companies,’ says Jong Tae Kim. ‘General contractors no longer buy tower cranes except for in a few special cases, in fact they buy very little of any construction equipment, preferring instead to outsource. This shift towards rental started in the mid-1990s. Prior to that, it was only general contractors who could afford to buy tower cranes.
‘This shift towards rental was partly to save money and partly because of a growing number of labour disputes on construction sites. Many contractors decided it would be better to outsource both equipment rental and operating staff to minimise their responsibilities.
‘Because of the tendency towards rental, the market for cranes has changed – today it is driven more by price. Build quality, reliability and safety are still important for rental companies, but their first priority remains price. As a general rule, rental companies like to recoup all of their initial investment in a tower crane within a four year period.
‘There are between 300 and 400 tower crane rental companies in South Korea today, although that includes many companies that own just one or two units. Major rental companies, those that own over 20 units, probably number less than 50.’ KIL itself has a sister company called Giga Industries that has a rental fleet of 10 Potain tower cranes.
Jong Tae Kim reckons that the total tower crane population in South Korea has grown by 500 or 600 units, including new and use imports from Europe and elsewhere, and locally manufactured cranes. His numbers seem slightly higher than those quoted by his rival at Gintex.
He continues: ‘The total population today is probably somewhere below 3,500 units and we think this is around the optimum level. We would therefore expect the market to be stable for the next few years, although we are expecting to see more interest in luffing jib units, for work in city centres. The South Korean market is not easy to forecast, it is an irregular market, but it is also one full of potential. People are also looking to the future and thinking of a possible re-unification with North Korea and what potential that holds for the country as a whole. We would hope that within 10 years the North Korean market will be open and we see good potential there for tower cranes.’
He adds, however, that although there are only a few companies competing in Korea at present, he expects to see other companies attempting to enter in the next few years, especially from China.
Japanese tower cranes do not find a market in Korea, though. ‘There is no competition from the Japanese-made models as they are engineered differently,’ says Jong Tae Kim. ‘Because of the dangers posed by typhoons and earthquakes in Japan, their tower cranes are designed to withstand wind speeds of up to 70m/s. This means Japanese tower cranes are heavier and more expensive. In South Korea our tower cranes are engineered to withstand wind speeds of less than 50m/s, the same as in Europe.’
The main driving force behind the sudden demand for tower cranes in South Korea has been the rapid increase in housing construction in the sprawling Seoul-Incheon conurbation where about half the country’s population of 42 million lives. The private housing boom also has reached the industrial port city of Pusan in the southeast and other major cities.
South Korea’s housing construction cycle is estimated at about 30 to 40 years. Most apartment blocks this age are knocked down and rebuilt with more storeys than before. Following recovery from the nation’s severe economic crisis in 1997 and a period of low inflation, South Korea’s housing market recently has started to boom as low bank interest rates encourage more people to invest in property. Before 1997 South Korea was building more than 500,000 housing units a year. This fell to 350,000 units in 1998 but climbed to over 650,000 units in 2002.
Says Jong Tae Kim: ‘There was a boom in the market which began in 2002 and is still going today. However we expect to see some kind of flattening in activity in 2004. Overall, I would say 2003 was one of the best years ever for tower crane sales in South Korea.’
He continues: ‘Before the economic crisis of 1997 there were fewer than 3,000 tower cranes in the country. Of these around 500 were permanently placed in shipyards or other industrial locations. So let’s say there were 2,500 involved in general construction work. When the economic crisis hit, construction orders fell around 40% and we estimate between 250 and 300 cranes were sold into the used equipment market and exported. Last year the government began to invest heavily in building projects, public housing in particular, to stimulate the construction industry. In fact, construction levels last year were higher than those in 1997 prior to the economic collapse. This, obviously, meant more cranes were required.’
There is concern about the long term sustainability of the housing construction market. A large increase in speculative investments in apartment purchase and construction has become evident recently, particularly in Seoul.
A growing number of private investors are buying old apartments in anticipation that new apartments will be built on the same site, which is fuelling a rise in property prices. Among measures to stop rising housing prices getting out of control, the government has announced plans to tax land speculation and stabilise the housing market.
Minister of finance and economy Jin Pyo Kim has ruled out further government policies to stimulate domestic consumption, which has driven strong economic growth during the past two years.
‘There are not many big commercial buildings being constructed now as there is enough office space, ’Theresa Kim says. ‘There are no new factories being built. Many South Korean companies are moving their factories to China. People are worried about the economy falling again.’