Displaying items by tag: Anhui Conch

Many of the Chinese cement producers have released their annual results for 2017 over the last week, giving us plenty to consider. The first takeaway is the stabilisation of cement sales since 2014. As can be seen in Graph 1, National Bureau of Statistics data shows that cement sales grew year-on-year from 2008 to 2014. This trend stopped in 2015 and then government mandated measures to control production overcapacity kicked-in such as a industry consolidation, shutting ‘obsolete’ plants and seasonal closures. Although it’s not shown here, that last measure, also known as peak shifting, cans be seen in quarterly sales data, with an 8% year-on-year fall in cement sales to 578Mt in the fourth quarter of 2017.

Graph 1: Cement sales in China, 2007 – 2017. Source: National Bureau of Statistics.

Looking at the sales revenue from the larger producers in 2017 doesn’t show a great deal except for the massive lead the two largest producers – CNBM and Anhui Conch – hold over their rivals. CNBM reported sales roughly twice as large as Anhui Conch, which in turn reported sales twice as large as China Resources Cement (CRC). With everything set for the merger between CNBM and Sinoma to complete at some point in the second quarter of 2018, that leader’s advantage can only get bigger.

Graph 2: Sales revenue of selected Chinese cement producers. Source: Company reports.

What’s more interesting here is how all of these companies are growing their sales at over 15% in a market where cement sales volumes appear to have fallen by 1.67% to 2.31Bnt in 2017. CNBM explained that its sale growth arose from improving cement prices in the wake of the government’s supply side changes. It added that national cement production fell by 3.1% to 2.34Bnt. CNBM’s annual results also suggested that the cement production capacity utilisation rate was 63% in 2017.

Anhui Conch’s results were notable for its large number of overseas projects as it followed the state’s ‘One Belt, One Road’ overseas industrial expansion strategy. Projects in Indonesia and Cambodia were finished in 2017 with production set for 2018. Further plants are in various states of development in Laos, Russia and Myanmar. The other point of interest was that Anhui Conch is developing a 50,000t CO₂ capture and purification pilot project at its Baimashan cement plant. Given the way the Chinese government has been able to direct the local industry, should it decide to promote CO₂ capture at cement plants in the way it has pushed for waste heat recovery units or co-processing, then the results could be enormous.

CRC reported its continued focus on alternative fuels. Municipal waste co-processing projects in Tianyang County, Guangxi and Midu County, Yunnan are under construction and are expected to be completed in the first half of 2018. Construction of its hazardous waste co-processing project in Changjiang, Hainan was completed in February 2018.

As ever with the Chinese cement industry, the worry is what happens once the production overcapacity kicks in. The state–published figures and state-owned cement companies suggest that the industry is in the early stages of coping with this. In February 2018 Reuters reported that the Ministry of Industry and Information Technology (MIIT) had banned new cement production capacity in 2018. The detail here is that new capacity is allowed but that it has to follow specific rules designed to decrease capacity overall. This followed an announcement by the China Cement Association that it would eliminate 393Mt of capacity and shut down 540 cement grinding companies by 2020. The aim here is to hold capacity utilisation rates at 80% and 70% for clinker and cement respectively and to consolidate clinker and cement production within the top ten producers by 70% and 60%. If the utilisation rate from CNBM is accurate then the industry has a way to go yet.

China: Anhui Conch has spent over US$7.9m on a 50,000t CO₂ capture and purification pilot project at its Baimashan cement plant in Anhui province. The unit is scheduled to start operation in the first half of 2018. The group has started the project in order to participate in the government’s ‘Intended Nationally Determined Contributions’ CO₂ emission reduction initiative.

China: Anhui Conch’s sales revenue grew by 35% year-on-year to US$11.9bn in 2017 from US$8.85bn in 2016. Its net profit nearly doubled to US$2.51bn from US$1.36bn. The cement producer said that it had, ‘seized the favourable opportunities arising from the state’s further deepening of supply-side structural reform and the promotion of off-peak season production.’

During the year Anhui Conch opened eight cement grinding plants including Quanjiao Conch Cement, Anhui Xuancheng Conch Cement and Nantong Conch Cement. Outside of China the company completed phase two of its Merak grinding plant in Indonesia and started cement production and completed construction of the North Sulawesi Conch plant in Indonesia and the Battambang Conch plant in Cambodia. The units in Indonesia and Cambodia are due to start production in 2018. A new plant, Luang Prabang Conch, is being built in Laos and preliminary work on projects at Volga Conch in Russia, Vientiane in Laos and Mandalay in Myanmar is underway. At the end of 2017 Anhui Conch says it has a clinker and cement production capacity of 246t/yr and 335Mt/yr respectively.

The cement producer also announced that its Baimashan Cement plant was intending to start operating a CO₂ collection and purification pilot project in the first half of 2018. The initiative is part of the group’s moves to implement the government’s low-carbon development strategy.

China: Anhui Conch Cement has appointed Yu Shui and Wu Tiejun as assistants to the general manager of the company. The postings have been made to strengthen training of junior management. They will replace Chen Yongbo in the role.

Yu graduated from Anhui University with a bachelor degree in economics. He joined the company in 1997 and has held various positions such as deputy director of the control room of the company’s sales department, assistant to director, deputy director and executive deputy director of the sales department, and in some of the company’s subsidiaries, such as executive deputy general manager of Bengbu Conch Cement, Huainan Conch Cement and Anhui Changfeng Conch Cement, general manager of Conch South Kalimantan Cement and deputy director of Wanbei Regional Management Committee. Yu is currently a director of the company’s sales department.

Wu graduated from Wuhan University of Technology with a bachelor degree in inorganic non-metallic materials. He joined the company in 2001 and has held various positions such as director of the production branch of the subsidiary, Anhui Chizhou Conch Cement, assistant to general manager, deputy general manager, executive deputy general manager and general manager of Chizhou Conch, general manager of Yingde Conch Cement and executive deputy director of the Guangdong Regional Management Committee. Wu is currently a director of the Guangdong Regional Management Committee and officer of the production control and craft management centre of the Company.

There is plenty to mull over on the Chinese cement market at the moment as the half-year reports for the major cement producers are being published. Anhui Conch revealed this week a glowing balance sheet with a 33% jump in its sales revenue to US$4.79bn. It attributed the boost to a ‘significant’ increase in prices and continued discipline with production and operation costs. Although CNBM is scheduled to release its results at the end of August 2017, Anhui Conch appear to be well ahead of its next largest rivals locally as can be seen in Graph 1.

Graph 1: Sales revenue of major selected Chinese cement producers. Sources: Company financial results.

Beyond the headline figures it is interesting to pinpoint the areas in China where Anhui Conch says it isn’t doing as well. Its South China region, comprising Guangdong and Guangxi provinces, suffered from competition in the form of new production capacity, which also in turn dented prices. Despite this ‘black spot’ in the company’s regional revenue still grew its sales in double-digits by 14%.

The other point to note is the growing number of overseas projects with the completion of a cement grinding plant in Indonesia, new plants being built in Indonesia, Cambodia and Laos, and projects being actively planned in Russia, Laos and Myanmar. The cement producer also opened seven grinding plants at home in China during the reporting period. It’s not there yet but it will mark a serious tipping point when the company starts to open more plants outside of China than within it. With the government still pushing for production capacity reduction it can only be a matter of time. On that last point China Resources Cement (CRC) reckoned in its half-year results that only four new clinker production lines, with a production capacity of 5.1Mt/yr, were opened in China in the first half of 2017.

After a testing year in 2016 CRC’s turnover has picked up so far in the first-half of 2017 as its sales revenue for the period rose by 17% to US$1.67bn. Despite its cement sales volumes falling by 9% to 33.6Mt, its price increased. Given that over two thirds of its cement sales arose from Guangdong and Guangxi it seems likely that CRC suffered from the same competition issues that Anhui Conch complained about.

Graph 2: Chinese cement production by half year, 2014 – 2017. Source: National Bureau of Statistics of China.

Graph 2 adds to the picture of a resurgent local cement industry suggesting that the Chinese government’s response to the overcapacity crisis may be starting to deliver growth again. After cement production hit a high in 2014 in fell in 2015 and started to revive in 2016. So far 2017 seems to be following this trend.

Returning to the foreign ambitions of China’s cement producers brings up another story from this week with news about the Nepalese government’s decision to delay signed an investment agreement with a Chinese joint venture that is currently building a cement plant in the country. With the prime minister visiting India the local press is painting it as a face-saving move by the Nepalese to avoid antagonising either of the country’s main infrastructure partners. This is relevant because the cement industries of both China and India are starting look abroad as they consolidate and rationalise. Once China’s cement producer start building more capacity overseas than at home, conflicts with Indian producers are likely to grow and present more awkward situations for states caught in the middle.

China: Qi Shengli has resigned as a supervisor and the chairman of the supervisory committee from Anhui Conch Cement. His resignation will take effect upon the appointment of a successor. The recruitment process is continuing at present.

Yang Kaifa has resigned as a company secretary. Chiu Pak Yue Leo remains a company secretary. Zhou Bo, an executive director and chief accountant, will aid him. A new company sectary to replace Yang is being recruited.

Lots of fascinating information has been emerging in recent weeks about changes in the Chinese cement industry as the larger producers have published their annual financial results. One example is the focus on using alternative fuels to fire up kilns. As explained below, the spotlight on co-processing is state-mandated and this is why the producers are now keen to promote their adherence. Even so, as ever with China, the scale of the change is staggering.

For example, Anhui Conch reported that it had completed 15 waste treatment projects and one sludge treatment project in 2016. In addition it had three projects still undergoing construction at the year-end. The group said that it co-processed 600,000t of domestic waste in its cement kilns in 2016. All of this was achieved by a company that says it only started co-processing municipal waste from its first project in 2010. China Resources Cement’s (CRC) progress was slower but it managed to start a co-processing project at its plant in Binyang County, Guangxi in December 2015 and a sludge project in Nanning City, Guangxi in July 2016. New projects at Tianyang County, Guangxi and Midu County, Yunnan are being built at present, with completion expected by the end of 2017.

Long held rumours about production overcapacity in China came to head in 2015 with the National Bureau of Statistics in China (NBSC) reporting that sales dropped in 2015 following a decade of steady growth. Then the results of most of major producers followed this by falling in 2015. CRC presented a good history of what happened next in the Chinese cement industry in its results report [LINK]. In brief, in 2016 the Chinese government implemented supply-side structural reforms focusing on production efficiency, reiterating attempts to stop new production capacity being built and pushing environmental reforms. Throughout the year various government offices released guidelines to encourage market consolidation, cut obsolete production capacity, increase co-processing rates and decrease the energy needed to produce each tonne of clinker.

Graph 1: Cement sales in China, 2012 – 2016. Source: National Bureau of Statistics in China.

Whether or not any of this has helped the Chinese cement industry to overcome the problems it faced in 2015 is unclear. As Graph 1 shows, Chinese cement sales started to rise again slightly to 2.35Bnt in 2016 from 2.31Bnt in 2015. Sales revenue from some of the major cement producers presents a more varied picture as can be seen in Graph 2. Anhui Conch’s revenue rose by 9.7% year-on-year to US$8.12bn in 2016, China National Building Material Company’s (CNBM) revenue rose by 1% to US$14.8bn and CRC’s revenue fell by 4.2% to US$3.3bn. CRC may have suffered here from its relative business concentration in southeast China. Both Anhui Conch’s and CNBM’s results seemed to look patchy in mid-2016 when they released their half-year reports, but both sales and profits seemed to pick up sharply in the second half of the year.

Graph 2: Sales revenue from selected major Chinese cement producers. Source: Company annual reports.

As the current set of structural reforms kick in within the Chinese cement industry it will be interesting to see what happens next. From plans to cut 10% of local clinker production capacity by 2020 to ambitious environmental aims the sector barely has time to catch its breath. The question is whether the major producers balance sheets are being helped more by a recovering local market or by the reforms. Either way the uptake of alternative fuels is encouraging.

Check out this graph of Chinese cement prices from September 2015. An author at Business Insider attributes it to Larry Hu, the Chief China Economist for Macquarie. It pretty much sums up the mood analysts have at the moment regarding the Chinese cement industry.

Figure 1: China cement prices, 2012 – 2015. Source: CEIC, Bloomberg, Macquarie Research September 2015.

The recent announcement by the Assets Supervision and Administration Commission regarding the merger of China National Building Materials Group Corporation (CNBM) and China National Materials Group Corporation (Sinoma) comes hot on the heels of a series of poor half-year financial returns from China’s major cement producers. Attempts to tackle overcapacity in its local cement industry have been underway for a few years now. Actions taken include demolishing outmoded capacity, merging companies and expanding overseas. However as the construction markets have cooled in the country the scope of what the cement industry is facing has become clear, as revenues and profits have tumbled.

Now that the first half cement sales volume data has become available from the National Bureau of Statistics of China (NBSC) the response of the cement industry to its predicament has emerged. As can be seen in Figure 2 there has been a rough trend of sales decline throughout 2014 and 2015. The first half of 2016 has started to buck this trend as sales volumes have risen year-on-year for both quarters.

Figure 2 – Chinese cement production by quarter, 2014 – 2016. Source: National Bureau of Statistics of China.

Sales revenues have dropped for most of the major companies that have publicly released their results for the first half of the year. The exception is Taiwan Cement, which makes a large proportion of its sales revenue outside of China (People’s Republic of China). Its sales revenue in China barely rose year-on-year in the first half of 2016. However, the cement sales volumes for all these companies have started to show what is happening. They have risen for most of the producers examined. Essentially, each of these producers is producing more cement but making less money. As Digital Cement puts it, the industry is in a 'low-profit position.' Increased market competition and endemic industry overcapacity are causing this.

Mergers and acquisitions have been the big story for the European multinational producers following the economic crash in 2007. Returns from low growth markets have been substituted for efficiencies of scale, knowledge sharing and greater international reach. Lafarge and Holcim merged in 2015 and HeidelbergCement is due to complete its acquisition of Italcementi later this year. However, as LafargeHolcim's disappointing financial returns and its continued slew of divestments show so far, the merger has not worked as well as may have been hoped… yet.

Whether China's version of this works with its large state owned enterprises is uncertain. Mergers are meant to cut out inefficiencies through economies of scale. Yet the question remains: can even larger Chinese cement producers do this when they are state controlled and harangued by pressures outside the normal market, particularly when local regions try to preserve their industries. The last such big deal, between Anhui Conch and China Resources Cement, fell apart in July 2016. The plans for CNBM and Sinoma may fare better but if the price of cement keeps falling then the market may have other ideas.

For more information see the China country report in the September 2016 issue of Global Cement Magazine

The Chinese stock market volatility this week has not been a surprise for the cement industry. The question for both the local cement industry and the wider economy is how the current economic jitters are being managed. Are we witnessing the long expected hard landing of the Chinese economy or will the state planners been able to dodge it?

Growth in the housing market and infrastructure spending has been falling. The country's cement producers have reduced their production growth as the industry consolidates. First half profits in 2015 have fallen for many Chinese cement producers including China Resources Cement and Asia Cement. Anhui Conch, one of the top three cement producers in the world, reported that its first quarter profits in 2015 fell by 31%.

Chinese cement production figures have always seemed incompatible with other data suggesting incomplete information. For example, the Global Cement Directory 2015 reported China's cement production capacity at 1.48Bnt/yr. At full capacity utilisation this would suggest a national cement consumption of 1057kg/capita, a figure that bears no resemblance to any other country on earth with the exception of petrochemical giants like Saudi Arabia and Qatar. Although, to be fair to China, it's recent economic growth has been unprecedented. Poor reporting, the country's unique state regulated capitalism, language difficulties and other factors may all have contributed to confusion among western analysts.

In mid-August 2015 China devalued the Yuan in its biggest drop in 20 years. It is likely it was a strategy to boost exports to rally markets against a sliding stock market since mid June. At the time of writing the Chinese authorities have now tried cutting interest rates with a similar aim and the markets have rallied.

The effect of a devalued Yuan is relevant due to China's overcapacity in several heavy industries such as a steel and cement. Already European and North American steel bodies have cried out against the threat of fresh Chinese exports undercutting their business. Clinker exports are likely to pose less of a risk given its relative low value and high transport costs. Even so, China exported less than 15Mt in 2013, a tiny portion of its production capacity. Altering the exchange rate might well help that export figure creep up. This would be bad news for local cement producers in coastal areas of East Africa for example. Here, Chinese imports might be harder to resist than, say, southern Asian ones, due to Chinese investment in the region. Recent spats over Chinese cement imports in Kenya and Zimbabwe underline this issue.

More worrying for the wider cement industry will be the risk of Chinese cement plant manufacturers and suppliers further undercutting western firms. Eurocement signed a deal with Sinoma in November 2014 for the Chinese equipment producer to supply three 3Mt/yr production lines for US$93.3m each or just over US$30m per 1Mt of production capacity. Compare this to FLSmidth's charge to a Qatari firm of US$190m in October 2014 to build a 2.24Mt/yr production line or just over US$80m per 1Mt of production capacity. This is not a completely fair comparison due to the plants being in completely different regions, but it gives some idea of the price pressures non-Chinese equipment manufacturers face. In their defence the usual argument is that their equipment is better made. However, cement producers being able to buy even cheaper Chinese kit will not help their plight. Today we report on Dangote Cement signing yet more contracts with Sinoma to build new cement plants in Africa.

The actions of the Chinese financial authorities show that they are trying careful tweaks one-by-one to fix the situation. The real problem though is that, as China transitions from a developing nation into a developed one, broader structural changes to the general economy may be required instead of tweaks. A massively over-producing cement industry is a symptom of this and how the country copes with it is instructive to how it will succeed overall. Bold attempts to consolidate the industry have shown willingness in recent years. Unfortunately the current crisis may artificially prop up an industry that should be reducing in size.

A couple of news stories this week from Myanmar present an opportunity to look at the country. Lafarge has opened a cement repacking plant in the Thilawa special economic zone (SEZ). Upcountry meanwhile, Anhui Conch has had a joint venture approved by the government for an upgrade to an existing cement plant in Kyaukse.

Towards the end of 2013 the government announced that 13 companies were to establish joint ventures with the local state-owned cement plants. In addition the Myanmar Investment Commission had approved the construction of nine new cement plants with an aim of a target cement production capacity of 10.53Mt/yr. Following this, Siam Cement Group's on-going investment in a 1.8Mt/yr plant is due for completion in 2016. Semen Indonesia have been pushing for a joint venture since mid-2014 although it was still trying to agree terms in September 2014, according to local media. Italcementi's chief executive Carlo Pesenti also expressed his company's interest in setting up a joint venture in early 2014.

Association of Southeast Asian Nations (ASEAN) investment bank CIMB placed cement demand in Myanmar at 4Mt in 2012 and a local cement production capacity of 3Mt/yr. Cement consumption was placed at 76kg/capita for the country's population of 52.8 million. In contrast, Thai cement engineering supplier LV Technology reported demand of 6Mt in 2012. CIMB recorded Myanmar's capacity utilisation rate at 60%. Cement sales were broken down as 95% by bag and 5% by bulk.

This kind of supply-demand gap excites foreign investors. Neighbouring Thailand has a consumption of 515kg/capita, Myanmar imports cement from Thailand, Indonesia and India and the country's GDP growth rate is currently estimated to be around 8%.

Yet what's notable about Myanmar's industry are the high number of small, low production capacity cement plants. Many of them are wet process plants. Only one plant is reported as being capable of producing over 0.5Mt/yr with the Siam Cement plant project due to significantly bust this record when it is commissioned in 2016. Limited limestone deposits in the country may also make plants larger than 1.5Mt/yr unviable. Fuel is also an issue, with LV Technology advocating a wholesale industry conversion from state-subsidised gas to coal due to power shortages and impending competition issues.

In 2015 Myanmar is set to enact free trade tariffs from its ASEAN membership. Without protection or preparation, its cement plants could face serious consequences from cheaper imports from Thailand, Indonesia and Vietnam. The move by the government to encourage joint ventures with foreign partners looks like one way to mitigate this. In a market report in 2013 CIMB described the situation for investors as 'high-growth, high-barrier.' This seems to be an apt description given the experiences of Semen Indonesia.