Building Materials Industry Outperforms in Q2... Raw Material Costs Loom as Second Half Challenge

LX Hausys Operating Profit Up 329%
KCC Holds Steady, Silicone and Paints Down
Raw Material and Shipping Cost Increases Are Key Variables

Building material companies outperformed market expectations in the second quarter of this year, supported by an increase in housing transaction volume. LX Hausys saw a sharp surge in operating profit due to a recovery in remodeling demand. While KCC performed well in the building materials business, the recovery in its silicone and paint businesses was relatively slower. Some experts have pointed out that, in the second half of the year, significant increases in raw material prices may begin to exert more pressure, leading to increased uncertainty.

LX Hausys Achieves a Turnaround in the First Half, Shifts Focus to Premium Strategy

According to industry sources on August 10, LX Hausys posted an operating profit of 54.9 billion won in the second quarter, up 329% from the same period last year. By segment, operating profit was 36.7 billion won for architectural interior materials and 18.2 billion won for automotive materials & industrial films. Notably, the building materials segment had recorded an operating loss of 31.7 billion won in the fourth quarter of last year, but turned around to an operating profit of 36.7 billion won within just two quarters.

Strong performance in building materials was driven by both increased B2C (business-to-consumer) sales and expanded B2B (business-to-business) revenue. According to the Ministry of Land, Infrastructure and Transport, housing transactions from January to June totaled 396,274 units, a 10.6% increase compared to the same period last year. Despite expectations for a downturn following the end of heavy capital gains tax relief for multiple home owners on May 9, transaction volume actually increased in regions outside Seoul even in June. June housing transactions rose 3.5% compared to the previous month (66,490 units), with the capital area (39,078 units) up 1.6% and non-capital regions (29,741 units) up 6.2%. As a result, transaction volume surged especially in areas outside Seoul (where it fell by 13%).

For the second half of the year, LX Hausys plans to scale up its portfolio of high-value-added products in the building materials segment and strengthen its domestic B2C distribution competitiveness. The company recently secured a contract to supply the Italian imported kitchen furniture brand 'Rastelli' to Banpo DH Clast and Busan Define Gwang-an. By expanding imported kitchen furniture sales channels to general consumers, LX Hausys is pursuing the diversification of B2C revenue sources. The company is also ramping up sales targeting major redevelopment areas, such as Apgujeong and Hannam, where material selection is expected to begin in earnest starting next year.

Key issues going forward include the potential for continued rises in raw material and logistics costs due to the US-Iran war. Real estate market movements influenced by lending regulations or higher property taxes are also risk factors. Seungjun Kim, a researcher at Hana Securities, commented, "There are concerns that tightening policies such as property tax could dampen demand for interior remodeling in the second half, resulting in weaker performance for LX Hausys compared to the first half. Recently, a renewed rise in oil prices is likely to push up raw material costs for the third quarter as well."

KCC Focuses on Recovering its Silicone Business

KCC’s results exceeded market expectations, yet operating profit still remained at 128.9 billion won, down 8% from a year earlier. Estimated operating profit by segment was as follows: paint 47.7 billion won, silicone 37 billion won, and building materials 35.2 billion won. Year-on-year, building materials increased by 10%, while silicone and paint are estimated to have declined by 10% and 26%, respectively.

KCC explained, "Profitability in the paint business declined due to increased raw material prices caused by the closure of the Strait of Hormuz. However, the diversified business portfolio—including performance improvements in building materials thanks to increased high-tech demand, and improved results in silicone due to higher sales of high-value-added products—helped offset the decrease in overall profitability."

The silicone division, which constitutes KCC’s largest sales share, saw significant improvement compared to the previous quarter, backed by both price increases and higher sales volumes from the second quarter. In building materials, increased housing transaction volumes offset cost pressures from higher PVC window raw material prices, while demand for industrial insulation also rose. In contrast, the paint division saw a sales boost from strong demand in automotive and shipbuilding-related sectors, but was unable to meaningfully improve profitability.

KCC plans to focus on commercial demand—including semiconductor factories and data centers—within its building materials business, and to diversify its paint business portfolio while also managing procurement costs.

KCC added, "If we see an increase in insulation sales volume and a recovery in silicone demand and price policy effects in the second half, performance may improve. However, uncertainty around raw material prices and the external environment remains." Jaeseong Yoon, a researcher at Hana Securities, analyzed, "Cost pressures are likely to surface for some products as the effects of rising costs are reflected in both the building materials and paint businesses."

This content was produced with the assistance of AI translation services.