The People's Republic of China (PRC), which spans 9,596,961km2, is the world's second-largest country by land area, behind Russia.1 With an estimated population of 1.36bn in 2014, China is the most highly-populated country in the world. It is home to a strong manufacturing industry and the world's largest cement market. Here Global Cement Magazine gives an overview of the Chinese cement industry and an update on recent developments.
Introduction
China is divided into 22 Provinces, five Autonomous Regions, four Municipalities and two Special Administrative Zones. Taiwan is China's '23rd Province,' although its status is contested and the region is governed by the Republic of China (ROC). The PRC has been governed by the Communist Party since 1949 from the capital city of Beijing. Xi Jinping is the current president.
China joined the United Nations (UN) in 1971, is a recognised nuclear weapons state and has the world's largest standing army. The country is best known for Tiananmen Square, The Great Wall of China, the iconic Summer Palace (Figure 1) and the endangered Giant Panda. With such a large land mass, China is home to many remarkable natural habitats like the Taklamakan and Gobi Deserts, as well as the Himalayas.
The Chinese New Year (also known as the Lunar New Year or Spring Festival) is the country's most widely-celebrated and longest festival. The event is observed in many regions around the world, including 'Chinatowns' in London and Melbourne, as well as nearby countries like Malaysia and Singapore.
Economy
China is one of the world's BRIC economies, which also includes Brazil, Russia and India. The BRIC countries are characterised by newly advanced economic development. They currently comprise around 40% of the world's population but only 25% of the world's gross national income. The gross national income percentage is expected to increase rapidly by 2050. Unique from the other BRIC economies, China uses a socialist market economy, which some have criticised as a form of State capitalism.
China has the world's second-largest economy with a GDP (Purchasing Power Parity - PPP) of US$13.39tn or US$9.33tn (using the official exchange rate) in 2013, behind only the US.1 GDP comparisons are complicated as China's exchange rate is fixed rather than determined by market forces; to prevent underestimating China's output, GDP (PPP) is usually used for country comparisons. China's GDP has grown rapidly since 2006 (Figure 2). China's GDP/capita was US$9800/capita in 2013, indicative that China's population may not be seeing the full benefit of the country's wealth. Despite this, only 6.1% of China's inhabitants are below the poverty line.
The Chinese economy is guided by the government's five year plans, the first of which spanned 1953 - 1957. The five year plans contain detailed development guidelines to promote economic growth. The current 2011 - 2015 plan targets 51.5% urbanisation, an 8%/yr GDP growth rate, a 7%/yr GDP/capita growth rate, keeping the population below 1.39bn and the construction of 36 million houses for low-income families. Planned infrastructure projects include a new airport in Beijing, the extension of high-speed railways to 45,000km and the extension of highway networks to 83,000km. China is increasing its focus on large scale hydropower and nuclear power plants, with new research being performed in the field of uranium-free nuclear power, in which thorium is used as a safer alternative.2
China is an industrial market world-leader with a massive output from the agricultural and manufacturing industries, particularly materials, chemicals, consumer products and luxury goods. China is the world's largest exporter and in 2013 it exported US$2.21tn of goods, up from US$2.05tn in 2012.
The PRC also has the world's largest labour force. In 2013 this was 1.004 billion, of which 33.6% worked in agriculture, 30.3% in industry and 36.1% in the service sector. Unemployment rates are low at 4.3%. China's population is growing at a rate of 0.44% in 2014, contributed to by a birth rate of 12.17/1000, a death rate of 7.44/1000 and an emigration rate of 0.32/1000.
The country's one-child policy has reduced the number of births by an estimated 200 million between 1979 and 2009. However, with the preference for male children, China's population is blighted by an uneven gender division, which is expected to negatively impact the entire economy.3 In 2014, there are 1.06 males for every female of all age ranges and 1.16 males between 0 - 14 years old for every female.
Cement industry overview
The cement industry in China was relatively small at the start of the PRC in 1949. Due to the large land mass and poor infrastructure, many towns and villages had small cement kilns to provide for their own needs, while larger communities often had vertical shaft kilns.4 The number of small and vertical shaft kilns multiplied over the years and in 1983 China had a total cement production capacity of 108Mt/yr, second only to the USSR. In the 1980s a trend towards large integrated cement plants emerged and several government-owned cement producers were established to increase production. In 2000 the government began to reduce the number of small cement plants on the basis of their inefficiency and high levels of emissions. These efforts are still ongoing today but official figures show that production rose from 583Mt/yr in 2000 to 1.88Bnt/yr in 2010.
According to Global Cement's Global Cement Directory 2014, in 2014 the Chinese cement industry consists of 802 integrated cement plants with a combined production capacity of 1.34Bnt/yr (Table 1, Figure 3). However, given the large number of remote cement plants and the lack of independent verification regarding the information supplied by Chinese cement companies, the data regarding plant numbers and production capacity remains incomplete.
Region | Plants | Capacity (Mt/yr) |
Anhui Province | 34 | 195.1 |
Beijing Municipality | 6 | 4.680 |
Chongqing Municipality | 19 | 29.97 |
Fujian Province | 17 | 26.00 |
Gansu Province | 26 | 19.63 |
Guangdong Province | 27 | 71.31 |
Guangxi Zhuang Autonomous Region | 37 | 106.7 |
Guizhou Province | 28 | 18.97 |
Hainan Province | 7 | 12.34 |
Hebei Province | 21 | 58.46 |
Heilongjiang Province | 13 | 11.95 |
Henan Province | 47 | 83.92 |
Hong Kong Special Administrative Zone | 0 | 0.000 |
Hubei Province | 29 | 46.96 |
Hunan Province | 30 | 55.55 |
Inner Mongolia Autonomous Region | 15 | 20.15 |
Jiangsu Province | 23 | 71.28 |
Jiangxi Province | 27 | 56.16 |
Jilin Province | 11 | 21.62 |
Liaoning Province | 24 | 45.72 |
Macau Special Administrative Zone | 0 | 0.000 |
Ningxia Hui Autonomous Region | 15 | 12.06 |
Qinghai Province | 10 | 4.740 |
Shaanxi Province | 63 | 37.24 |
Shandong Province | 43 | 79.44 |
Shanghai Municipality | 3 | 1.560 |
Shanxi Province | 11 | 13.06 |
Sichuan Province | 81 | 93.13 |
Tianjin Municipality | 1 | 1.560 |
Tibet Autonomous Region | 9 | 2.380 |
Xinjiang Uyghur Autonomous Region | 18 | 8.780 |
Yunnan Province | 53 | 31.48 |
Zhejiang Province | 54 | 97.60 |
Total | 802 | 1339.44 |
Above - Table 1: The cement production capacity and number of plants in Chinese Provinces, Municipalities, Autonomous Regions and Special Administrative Zones in 2014. Source: Global Cement Directory 2014.
Official Chinese cement production statistics report a 9.5% year-on-year increase to 2.42Bnt in 2013, up from the 5.7% year-on-year growth recorded in 2012.5 Clinker production capacity was 1.9Bnt/yr. In comparison, global cement production in 2013 was 4.0Bt, while global clinker capacity was 3.4Bnt/yr. As such, China apparently possessed 60.5% of the world's cement production and 55.9% of its clinker production capacity in 2013. Given that China exported just 14.5Mt of cement during the year,6 this means the country has an apparent cement consumption rate of 1786kg/capita/yr, which is significantly higher than the 1000kg/capita/yr level commonly seen in rapidly-developing countries. Previous suggestions that China has over-reported its cement production volumes have been made. Evidence of unnecessary construction projects have been highlighted in the media, including the New South China Mall in Guangdong Province (Figure 4). This may account for a portion of cement demand.
The cement industry made US$12.3bn in profit in 2013, a 16.4% increase on 2012, which was attributed largely to favourable coal prices.5 Jiangsu Province produced 180Mt of cement in 2013, which was the largest quantity produced in a single Chinese region. Much of the growth in cement production originated from the south-west and the north-west, where growth was 12.8% and 17.3% in turn. Growth in the south and east of China remained close to the national average of 9.5%, while cement production rapidly declined in the north and north-eastern regions, to growth rates of <3%. Interestingly, the regions with the most production capacity do not correlate with the highest population (Table 2). Clinker production was 1.36Bnt in 2013, up by 5.5% year-on-year.
Region | Population (million) |
Guangdong Province | 105.9 |
Shandong Province | 96.85 |
Henan Province | 94.06 |
Sichuan Province | 80.76 |
Far right - Table 2: The most highly populated Chinese regions in 2012. Source: Statista, the statistics portal.
The Chinese cement industry is represented by the China Cement Association (CCA), which was founded in 1987.7The CCA, together with the Chinese government, develops plans for industrial policies, regulation, codes and standards. It also provides assistance regarding their implementation. The CCA supplies the cement industry with input on new technologies, research and business management
Cement companies
The top 20 cement producers in China operate 292 integrated cement plants with a combined production capacity of 811.78Mt/yr (Table 3). All of the companies are Chinese, with the exception of minority shareholders and Taiwan Cement. The top 20 cement producers in China account for 60.6% of the country's cement production capacity and 36.4% of its cement plants. The disparity in percentages suggests that the top producers operate fewer plants with greater production capacities, in line with China's trend for consolidation. The remaining 39.4% of China's production capacity is owned by hundreds of small cement companies, some with production capacities as low as 50,000t/yr.
Company | Plants | Capacity (Mt/yr) |
Anhui Conch | 31 | 215.78 |
CNBM | 97 | 119.96 |
China Resources Cement (CRC) | 15 | 60.31 |
Taiwan Cement | 3 | 53.12 |
Sinoma | 21 | 39.17 |
Jidong Development Group | 9 | 36.07 |
China Tianrui Group | 11 | 33.08 |
Jiangsu Jinfeng Cement Group | 1 | 30.78 |
SUNNSY Group | 26 | 30.46 |
Lafarge Shui On Cement | 23 | 27.69 |
Sichuan Esheng Cement | 2 | 24.99 |
Jilin Yatai Group | 6 | 22.64 |
Huaxin Cement | 11 | 20.26 |
BBMG Corporation | 14 | 19.35 |
Asia Cement | 4 | 17.17 |
Jiangxi Wannianqing Cement | 4 | 16.55 |
Shangfeng Cement Group | 3 | 13.74 |
Inner Mongolia Mengxi Cement | 6 | 10.48 |
Shandong Quanxing Cement | 1 | 10.31 |
Prosperity Mineral Holdings Ltd | 4 | 9.87 |
Total | 292 | 811.78 |
Above - Table 3: The top 20 cement producers in China in 2014 by installed production capacity. Source: Global Cement Directory 2014.
Anhui Conch is China's largest cement producer in 2014, with 215.78Mt/yr of cement production capacity from 31 plants. In its 2013 annual report the company cited a cement production capacity of 231Mt/yr, including its operations in other countries. Of its total production capacity, 70Mt/yr is from one cement plant which has 36 dry-process kiln lines in Wuhu City, Anhui Province. State-owned Anhui was established in 1997 and primarily produces clinker and cement. It also manufactures slag cement, composite cements and special cements, including nuclear station cement, oil well cement and white cement. Notably, the company was ranked at number 603 on the Forbes top 2000 global companies list in 2014, which assesses companies by profitability.8
China National Building Materials (CNBM) is China's second largest cement producer with an installed cement production capacity of 119.96Mt/yr at 97 cement plants. However, CNBM claimed a cement production capacity of 388Mt/yr in its 2013 financial report and stated that 90% of its cement operations are in China. Given the lack of industry transparency and the large number (66) of new subsidiaries CNBM acquired during 2013, the facts are extremely difficult to verify. CNBM is another state-owned company that was founded in 1984, although unlike Anhui, CNBM runs a larger number of cement plants that each have fewer kilns.
China Resources Cement (CRC), part of China Resources Holdings, is the country's number three cement producer and was incorporated in 2003. Like Anhui Conch, CRC operates a relatively small number (15) of cement plants, many of which have a larger than usual production capacity. CRC has a cement production capacity of 60.31Mt/yr in China.
Taiwan Cement is China's fourth-largest cement company with 53.12Mt/yr of cement production capacity at three plants in China. The company was established by the Taiwan provincial government in 1946 and was privatised in 1954. Taiwan Cement claims to have a production capacity of 60Mt/yr in China (and 11Mt/yr in Taiwan) on its website.9
Sinoma (also known as China National Materials Group Corp) is the fifth-largest cement producer in China with a cement production capacity of 39.17Mt/yr from 21 plants. State-owned Sinoma was established in 1983 and also deals in fibreglass, composite materials and non-metallic minerals.
Jiangsu Jinfeng Cement Group, China's eighth-largest cement producer, exemplifies the country's trend towards mega-cement plants. The company operates just one cement plant in China with a production capacity of 30.78Mt/yr.
Lafarge Shui On Cement, which is a joint venture between France's Lafarge (55%) and China's SOCAM (45%),10 is the number 10 cement producer in China. The company has 23 integrated cement plants and a cement production capacity of 27.69Mt/yr, although on its website it claims a total of 30 cement plants and 30Mt/yr of production capacity.
Construction and upgrades
Many of the top 20 cement companies performed upgrades in 2013 and the start of 2014 in order to improve capacity, increase energy-efficiency and reduce harmful emissions. Anhui Conch increased its clinker production capacity by 11.6Mt/yr, its cement production capacity by 24.3Mt/yr and completed the construction of six clinker lines and 21 cement grinding units.
Most recently, CKI Holdings' subsidiary Green Island Cement officially commenced production at its new plant in Yunfu city, Guangdong Province in December 2013. The total plant investment was US$1.3bn. Lambert Leung, chief of the materials division at CKI Holdings, said that the group might invest another US$600m to build a second production line if the operating performance is satisfactory. Also in Guangdong Province, Guangdong Tapai Group announced in April 2014 that it plans to invest US$570m to build a new clinker production line in Meizhou city. The project will produce 6Mt/yr of clinker and is pending government approval.
In January 2014 construction of the rotary kiln at the Shaanxi Fuping cement plant was completed by China 20MCC Construction Group (20MCC Group) in Shaanxi Province. The plant now has a clinker production capacity of 4.03Mt/yr, a ground slag production capacity of 1.2Mt/yr and a cement production capacity of 3.35Mt/yr.
Company developments
Acquisitions were rife throughout 2013 as the PRC government has strongly encouraged industry consolidation. CNBM acquired 62 cement subsidiaries for a total of US$558m in 2013 via its four main cement businesses, China United, South Cement, North Cement and Southwest Cement. Around half of the acquisitions (33) were by Southwest Cement.
Sinoma also invested heavily during 2013. It acquired an additional 55% equity interest in Wuhai Xishui Cement for US$43m in June 2013 via its subsidiary Ningxia Building Materials. The deal made Wuhai Xishui Cement a wholly-owned subsidiary of Ningxia Building Materials. In September 2013 Sinoma also bought a 59.1% stake in the German mining equipment firm Hazemag & EPR for US$137m. "It will establish channels for the rapid expansion of Sinoma to the field of mining equipment," said Sinoma's chairman Liu Zhijiang.
The most recent notable acquisitions and sales include Fujian Cement's sale of 12 million shares in Industrial Bank Co Ltd in December 2013 for US$14.5m. This leaves Fujian Cement with 50.4 million remaining shares. Asia Cement's subsidiary Sichuan Yadong Cement acquired 100% of the equity interest in Sichuan Lanfeng Cement for US$321.7m in April 2014. Assets of the deal include a 5Mt/yr capacity cement plant in Pengzhou City, Sichuan Province. Finally, in May 2014 Jidong Development Group announced that it plans to acquire around 109 million additional shares in Jilin Yatai Group for US$60.3m. Once complete, Jidong Development Group's stake in Jilin Yatai Group will approach 5%.
In November 2013 CRC entered into an agreement with Jianhua Construction Materials Investment, a large concrete pile manufacturer, for the supply of cement for five years. According to the agreement, Jianhua will give priority to CRC for the purchase of cement in all regions where both parties have established production facilities, while CRC will deliver the required cement to Jianhua at the most 'favourable' market prices. The deal will provide CRC with a degree of market share protection.
Corruption at China Resources?
In August 2013 questions about China Resources were raised by local media.11 Its subsidiary, China Resources Power, purchased three coal mines in Shanxi Province for a total of US$1.6bn in 2010. However, the mines have not produced any coal since 2010 and have expired exploration licences. Critics have suggested that the purchase was overpriced and that vast quantities of the money has been squandered. However, coal reserves in the mines are deep and huge investments would be required to begin coal production. The issue is unresolved so far.
In April 2014 Chinese authorities detained Wang Hongkun, an executive director of China Resources Land, which is China Resources' property development arm. China Resources Land said that Hongkun had resigned due to personal health reasons. Additionally, China Resources' chief executive Wu Ding and its chairman Song Lin were investigated for corruption. China's anti-corruption body said that it was investigating Lin for a 'Serious violation of discipline.' Song has denied the allegations. China Resources has since appointed Fu Yuning as its new chairman.
Financial trends
Chinese cement producers reported strong results for 2013 and the start of 2014, in line with the growing economy and as expected considering the 16.4% year-on-year profit increase reported by the cement industry for 2013. The growth was attributed to increased cement prices, lower materials costs and increased demand due to the high number of infrastructure and residential housing projects.
For the first three months of the year that ended on 31 March 2014, Anhui Conch reported that its revenue rose by 27.5% year-on-year to US$2.02bn, while net profit rose by 159% year-on-year to US$414m. For the whole of 2013 Anhui's revenue rose by 20.7% year-on-year to US$8.85bn and its net profit grew by 48.3% year-on-year to US$1.50bn. Cement and clinker sales volumes were 228Mt, a 21.9% increase on 2012, while cement and clinker sales were US$8.66bn, up by 20.3% on 2012. Of the US$8.66bn cement and clinker sales, US$227m were exports, up from US$222m in 2012.
During the first quarter of 2014, which ended on 31 March 2014, CNBM reported a revenue of US$3.54bn, up by 11.8% year-on-year. Net profit was US$126.5m, up by 56.9% on the same period of 2013. For the whole of 2013 CNBM reported its revenue as US$18.8bn, up by 35.3% year-on-year. Net profit was US$1.33bn, a 7.43% improvement on 2012. Cement and clinker sales volumes rose by 29.1% year-on-year to 285.1Mt.
In the three month period that ended on 31 March 2014 CRC reported a profit of US$99.0m, up by 69.6% year-on-year. Cement sales volumes fell marginally to 13.2Mt from 13.4Mt during the same period of 2013, while cement sales grew to US$638m, up by 18.6% year-on-year. Clinker sales volumes fell by 25.7% year-on-year to 2.05Mt, while clinker sales fell by 8.86% year-on-year to US$75.1m. For the whole of 2013, CRC saw its net profit rise by 43.6% year-on-year to US$430m. Cement sales volumes rose by 20% year-on-year to 67.1Mt and clinker sales volumes fell by 11% year-on-year to 7.78Mt.
For the whole of 2013 Jidong Development Group's cement business Tangshan Jidong Cement reported revenues of US$2.49bn, up by 6.9% year-on-year. Gross profit was US$637m, up by 15.8% year-on-year, while total sales were up by 4.94% year-on-year to US$1.87bn.
China Tianrui Group's revenue rose by 14% year-on-year to US$1.40bn in 2013. However, China Tianrui Group's gross profit remained static at US$305m while earnings before interest, taxes, depreciation and amortisation (EBITDA) rose slightly to US$356m. Cement sales volumes grew by 41.4% to 36.9Mt in 2013, cement sales rose by 19% year-on-year to US$1.30bn and clinker sales fell by 23% to US$107m.
Environmental concerns
Environmental concerns in China have been well-publicised recently, with particular focus on air pollution and the destruction of natural resources. The lack of clean air can cause severe health problems including increased incidence of cancers. In January 2014 media sources reported that Beijing Municipality had resorted to broadcasting the sunrise as smog levels in the region had become so severe. While these reports were later found to be false as the video is broadcast every day as part of a tourism advertisement for Shandong Province,12 the poor visibility in Figure 5 is undeniable.
The World Health Organisation (WHO) has set safety limits for levels of particulate matter smaller than 2.5μm (PM2.5) at 10μg/Nm3 as an annual mean and 25μg/Nm3 for a 24 hour period.13 The 25μg/Nm3 level was exceeded several times in 2013 in Beijing, increasing the urgency for pollution reduction measures.14 According to the PRC's Ministry of Environmental Protection (MEP), China's cement industry contributes 15 - 20% of PM2.5, 3 - 4% of SO2 and 8 - 10% of NOx to the country's total emissions.
In July 2013 China's State Council approved a five-year plan, which spans 2013 - 2017, to invest US$277bn to fight air pollution.15 According to Wang Jinnan, vice president of the Chinese Academy for Environmental Planning, the money will be spent mainly in areas with high levels of PM2.5 like the Beijing-Hebei-Tianjin region. The plan targets emissions reductions of 25% in five years and has reduced the emissions limits on cement plants. The new limits apply to existing and newly-constructed plants:16
- NOx = 400mg/Nm3
- SO2 = 200mg/Nm3
- PM at the kiln = 30mg/m3
- PM at the grinder = 20mg/m3
- Dust = 20mg/m3
However, emissions limits have proved difficult to enforce. In March 2014, 71 of China's 74 cities failed to meet the required air quality standards.17 In response, the Chinese government plans to increase the power of environmental protection agencies to close polluting plants and demand larger fines.
The five-year pollution plan also included a ban on the construction of new power plants in three major regions to cap coal consumption to <65% of its total primary energy use by 2017. The regions are Beijing-Hebei-Tianjin, the Yangtze River Delta region that centres on Shanghai and the Pearl River Delta region in Guangdong Province. The regions will be encouraged to replace coal with power purchased from other areas or with power generated from natural gas or nuclear power. Beijing has since announced that it plans to close all of its coal power plants (Figure 6), replacing them with natural gas fuelled plants by 2017.14
Another attempt to reduce air pollution includes carbon emission trading schemes (ETS). In 2013 five pilot carbon ETS were launched in Shenzhen City, Beijing Municipality, Shanghai Municipality, Guangdong Province and Tianjin Municipality. Guangdong Province, which has allotted 350Mt of carbon emission quotas, is the largest scheme in China. A pilot carbon ETS was launched in Hubei Province early in 2014, while in May 2014 Chongqing Municipality announced that its carbon ETS would commence imminently.18 The pilot schemes have faced criticism regarding transparency as historic emissions data are unknown, as are the names of many of the companies taking part.19 However, Xie Zhenhua, vice chairman of the National Development and Reform Commission (NDRC), said that the schemes will help China to create a low carbon economy; "We will try to set up a national carbon market by 2020."
Recent reports state that China is, for the second year in a row, the world's leading investor in clean energy.20 In 2013 it invested US$54bn, which was US$17.3bn more than the world's second-largest clean energy investor, the USA. During the year, China installed wind farms with a total electricity production capacity of 14GW/yr.
Breaking environmental regulations
Although many cement companies have made significant efforts to become more environmentally-friendly in recent years, not all Chinese producers have adopted such a stance.
In June 2013 the Institute of Public and Environmental Affairs (IPEA) found that 17 cement companies regularly violate environmental protection laws by illegally discharging airborne pollutants. The IPEA also accused the companies of failing to disclose environmental information as required. The cement companies have about 170 recorded environmental violations between them. Violations include a lack of NOx abatement technology, faulty monitoring appliances and excessive emissions.
"The State Council recently released 10 measures to control airborne pollution and achieve energy and emissions reductions," said Ma Jun, director of the IPEA. "The energy-intensive cement, steel and thermal energy production industries, especially those leading listed companies, need to share the heavy responsibility of reducing emissions and not disappoint the public."
Dust emissions from the cement industry accounted for about 30% of total industrial emissions in 2009. "We found that the cement industry has shocking problems with dust and waste gas emissions," said Fang Yingjun from the environmental non-government organisation (NGO) Green Jiangnan. "The industry's violations have deeply harmed the living environment and health of those who live near the plants." Several environmental NGOs said that they had contacted the 17 listed companies to inform them of the aforementioned pollution problems, but most of the alleged offenders took an evasive stance.
Tackling overcapacity
China has had the largest cement industry in the world for more than 20 years, although signs of overcapacity were noted as far back as 2003.21 In 2012 Liu Ming of the NDRC warned that China was producing too much cement and that the country's capacity utilisation was only 69%.4 In October 2013 China's State Council issued the 'Guideline to tackle serious production overcapacity,' which covers the cement, steel, electrolytic aluminium, sheet glass and shipping sectors. The guideline is expected to play a key part in efforts to transform the economic growth mode and boost industrial restructuring.
As part of the solution to tackle overcapacity, the CCA drafted a plan to promote mergers and acquisitions in the cement industry. The plan will help to eliminate out-dated production capacity and increase the concentration ratio of the industry. According to the plan, the number of cement plants will fall significantly by 2015, to reach <1000 clinker production plants and <2000 large-scale cement grinding stations, each with an annual output of >600,000t/yr. The plan also envisages the development of five enterprise groups that each have >100Mt/yr of cement production capacity.
Accordingly, several regions have now banned the construction of new cement plants, including Beijing Municipality in March 2014 and Tianjin Municipality in April 2014. Beijing has also banned the expansion of existing cement plants.
The latest development came in April 2014 when the NDRC's Ming announced that China intends to halt the production of 32.5 grade cement. This would immediately reduce China's total cement production capacity by 340Mt/yr or 11%.
Demolitions
In an effort to confront both overcapacity and air pollution, the Ministry of Industry and Information Technology (MIIT) announced that China must reduce its total cement production capacity by 133.6Mt, including 60Mt/yr in Hebei Province. The MIIT expects that cement production utilisation will be improved to >75% and dust and NOx emissions will be cut by >40% after the measures are implemented.
Hebei Province has already made significant progress in capacity reduction (Figure 7). The first batch of demolitions, which targeted 18 cement plants with 9.4Mt/yr of capacity, took place between December 2013 and January 2014. The government pledged to pay around US$1.5m in compensation to the companies whose plants were shut down and to provide tax breaks when they start other businesses.
Two of Jinyu Dingxing Cement's plants were among the December 2013 demolitions. "Of the US$2.47m in compensation expected from the government, we have received half and are still awaiting government guidance on our future business," said Jinyu Dingxing's plant manager, Feng Jinmin.
Several of Yuancheng Construction Materials' cement plants were also among the demolitions. "We will follow the government project and want to control air pollution, so we agreed to close the plant," said Wang Jiangtao, marketing manager at one of the demolished plants. "However, it's still sad to see the plants being demolished." Jiangtao added that the company had invested more than US$4.94m in a new system in 2011 and had not yet covered the expenses.
The demolition of 17 more cement plants with a total production capacity of 9.1Mt/yr was completed in March 2014. Combined, the two batches of demolitions resulted in US$180m of direct economic losses and affected 3780 workers. "We may suffer slow economic growth in the short term, but this will upgrade the economic structure and will result in a good living environment for our people, so it is worthwhile," said Sun Ruibin, party chief of Shijiazhuang, Hebei Province.
Outlook
The IMF has predicted that Chinese GDP will grow by 7.5% in 2014 as the government targets more balanced and sustainable economic growth, with less focus on investment and more on commodity consumption.22 China's predicted GDP growth rates for 2014 and 2015 are significantly higher than other emerging economies and the world average (Table 4).
Region | 2014 | 2015 |
China | 7.5 | 7.3 |
Emerging economies | 4.9 | 5.3 |
World | 3.6 | 3.9 |
Above - Table 4: GDP growth rate forecasts for China, emerging economies and the world (%). Source: IMF World Economic Outlook April 2014.
Digital Cement's Pat Lam predicts that for the rest of 2014 the Chinese cement industry will see moderate growth in demand, attributed primarily to infrastructure projects and the construction of new towns.5 Cement production is forecast to grow by 6 - 7%, while further increases in efficiency and environmental improvements are also expected. Cement plant demolitions are expected to increase in pace.
The major cement producers in China maintain a positive outlook and most have reported expansion plans. CRC is adopting a broad-based approach of upgrades and acquisitions to increase capacity, while Lafarge Shui On Cement has opted for a 'value-growth' model, focusing more on research, production and creating new partnerships. Bruno Lafont, Lafarge's CEO, said that China's overcapacity issues have appeared in other growing markets before and that inefficient players will eventually be phased out. Anhui Conch has announced plans to improve profit margins by reducing clinker sales volumes and increasing sales volumes of 42.5 and 52.5 grade cements. It also plans to add an extra 19Mt/yr and 30Mt/yr of clinker and cement capacity respectively in 2014.
Considering the economic forecast, the Chinese cement industry is likely to grow at a steady pace for the near future as demand rises due to the growing population and large number of infrastructure projects. Production capacity increases will probably continue to outpace capacity losses through plant demolitions. However, industry sustainability is questionable should the Chinese government recognise the lack of demand for some of its large construction projects.
In order to drive growth on a more sustainable path, the government might consider focusing more heavily on the chronic housing shortage. A recent study by the Bank of China International Holdings Ltd (BOCI) reported that Anhui Conch is best placed, with its many rurally-located cement plants, to gain market share from the government's urbanisation targets, in addition to any attempt to deal with the housing crisis.23 To protect domestic market share and increase export demand, China-based cement companies might wish to pursue speciality cements as value-added products, which are of greater export value.
References
1. The CIA World Factbook, China, updated May 2014.
2. http://www.theguardian.com/world/2014/mar/19/china-uranium-nuclear-plants-smog-thorium.
4. Edwards, P., "China: First in cement," Global Cement Magazine, July-August 2013.
5. http://www.dcement.com/Article/201405/120931.html.
8. http://english.conch.cn/dt2111111258.asp?DocID=2111275640.
9. http://www.taiwancement.com/#About_1_1_3.
10. http://www.shuion.com/eng/Group/MediaRoom/2005/news200511a.asp.
12. http://www.techinasia.com/beijing-residents-watching-fake-sunrises-giant-tvs-pollution.
13. http://whqlibdoc.who.int/hq/2006/WHO_SDE_PHE_OEH_06.02_eng.pdf?ua=1.
14. http://www.reuters.com/article/2013/08/27/press-digest-china-idUSL4N0GS0EP20130827.
15. http://www.reuters.com/article/2013/07/25/us-china-pollution-idUSBRE96O01Z20130725.
16. http://english.mep.gov.cn/News_service/news_release/201401/t20140115_266434.htm.
18. http://www.dcement.com/Article/201405/120895.html.
19. http://www.ft.com/cms/s/0/c9b0faf8-d9e1-11e3-b3e3-00144feabdc0.html#axzz31sN6lnAb.
21. http://www.dcement.com/Article/201405/120880.html.
22. IMF World Economic Outlook database, April 2014.
23. http://www.bocigroup.com/pub/sc/vision/yjbg/201105/P020110526414041955721.pdf.