
Displaying items by tag: CNBM
Update on China, August 2023
30 August 2023The first half of 2023 has continued to be a tough period for the major China-based cement producers, with revenue and profits down for many. As CNBM put it, the sector is facing production overcapacity, weak demand, high inventory, low prices and declining profits. However, not every company has followed this trend, with a few such as Anhui Conch, Huaxin Cement and Tapai Group managing to hold operating income up and the latter somehow even managing to increase its net profit. The China Cement Association (CCA) in its financial coverage has memorably described these companies that have bucked the national picture as ‘dark horses.’
Graph 1: Sales revenue from selected Chinese cement producers. Source: Company financial reports. Note: For CNBM, cement revenue shown only.
Graph 1 above summarises the situation for a selected group of cement producers. Anhui Conch avoided the fate of CNBM by managing to grow its non-cement revenue, specifically from aggregates and concrete. Yet it too was unble to avoid its net profit falling by 32% year-on-year to US$928m in the first half of 2023 from US$1.37bn in the same period in 2022. Huaxin Cement pulled off the same trick by raising its concrete and aggregates revenue domestically and by growing its overseas revenue. As well as its subsidiaries in Africa, the company also added Oman Cement to its portfolio, completing the acquisition of a majority stake in April 2023. The CCA has a wider roundup of how well the local cement companies have done.
Graph 2: Cement output in China, 2019 to first half of 2023. Source: National Bureau of Statistics of China.
Data from the National Bureau of Statistics of China suggests that the cement sector is stagnating rather than actively declining. This is an improvement of sorts from the decline in the first half of 2022, at least. Cement output in the first half of 2023 rose ever so slightly to 980Mt from 979Mt in the same period in 2022. On a rolling annual basis cement output has been gently falling below 1% each month since November 2022, although it rose by nearly 1% in March 2023.
The underlying problem for the Chinese cement sector remains the local real estate market. Developer Country Garden has been the latest company to warn of potential losses – of up to US$7.6bn – in the first half of 2023. It is also currently attempting to ask for more time to repay a bond. This follows the financial problems that Evergrande has faced since 2021. Financial analysts have been monitoring the situation for several years and warning of what a larger collapse in the sector could mean for the wider economy, such as the implications for the banks that hold the debts of the developers. Commentary by Goldman Sachs in August 2023, for example, suggested that the real estate sector needs to manage its inventory on a large scale, with over US$2Tn in liquidations, in order to restructure debts in the property sector. It estimated that the whole situation could reduce the country’s entire gross domestic product (GDP) by 1.5% in 2023, although this would be the trough of the downturn in its view.
Cement producers in China continue to be held hostage by the conditions in the real estate market and the effect this has in turn on demand for building materials. Yet all is not lost, as the examples of the CCA’s ‘dark horses’ show, buoyed by business diversification, overseas expansion or even regional differences. How much longer the rest of the other cement companies can cope in this environment remains to be seen. A less regulated market would certainly expect to see mergers and acquisitions taking place as the financial pressure mounts. China, for now at least, remains steadfastly different. With luck the real estate market may reach its lowest point in 2023 and a recovery could follow.
CNBM’s sales and earnings fall in the first half of 2023
30 August 2023China: CNBM’s sales from its cement businesses fell by 16% year-on-year to US$6.14bn in the first half of 2023 from US$7.34 in the same period in 2022. Its adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 39% to US$991m from US$1.63bn. The group’s sales volumes of cement and clinker fell by 1% to 127Mt and 15% to 15.4Mt respectively. Sales volumes of concrete decreased by 10% to 35.6Mm3 from 39.5Mm3. Overall the group’s sales fell by 8% to US$14bn and its adjusted EBITDA by 27% to US$2.03bn.
The company said that its building materials division faced weakening demand, high inventory, low prices and declining profits. It noted that industry overcapacity remained high, despite supply-side structural changes, and that although the price of coal was declining it was insufficient to offset the fall in cement prices and profit in turn.
Gansu Qilianshan Cement’s profit falls in first half of 2023
22 August 2023China: Gansu Qilianshan Cement followed the general downward trend in Chinese cement producers’ results in the first half of 2023. Reuters has reported that the company recorded a net profit of US$32.6m, down by 53% year-on-year from first half of 2022.
China: Yin Zhisong has been elected as the chair of Sinoma International Engineering. He succeeds Liu Yan, who has resigned. Zhisong has held of number of management positions with subsidiaries of China National Building Material (CNBM) and Sinoma. Notably he has worked as the general manager of Suzhou Sinoma Construction, the general manager of Sinoma International Engineering and a vice president at Sinoma International Engineering.
China: China National Building Material expects its net profit to drop by 80% year-on-year during the first half of 2023. AAStocks Financial News has reported that the group partly attributed the anticipated drop to a fall in its cement prices, as well as its commercial concrete prices.
Ethiopia/India: Sinoma International Engineering and its subsidiaries have signed contracts to upgrade cement plants for Ethiopia-based Derba MIDROC Cement and India-based Ambuja Cement.
Sinoma International Engineering has signed a contract worth US$290m with Derba MIDROC Cement to build a 5000t/day clinker production line at the cement producer’s plant at Deba in Oromia. The project includes supplying a full line from raw material crushing to cement packaging. Once payment conditions are confirmed the project should take around 30 months.
Ambuja Cement has signed a contract with Sinoma subsidiary Tianjin Cement Industry Design and Research Institute (Sinoma TCDRI) to supply upgrades to its integrated Bhatapara plant in Chhattisgarh and its Farakka and Sankrail grinding plants in West Bengal. The clinker plant’s production capacity will be expanded to 4Mt/yr and both grinding plants will be increased to 2Mt/yr respectively. The value of the contract is around US$285m. Schedules for the proposed work will be agreed subject to further negotiation.
China: China National Building Material (CNBM) subsidiary New Tianshan Cement plans to increase its stake in Ningxia Building Materials to 51% from 49% for US$373m. Reuters has reported that New Tianshan Cement will raise funds through the issuance of US$971m-worth of commercial papers.
Further to the restructuring, CNBM will enlarge its stake in Ningxia Building Materials subsidiary Ningxia Saima by 12%.
Ethiopia: Derba MIDROC Cement is reportedly ready to sign a contract with China National Building Material (CNBM), for the latter to commence construction of Derba MIDROC Cement's 2.74Mt/yr Mughar Valley cement plant in Oromia. The producer said that it expects to invest US$500m in the project, 30% higher than its previous estimate of US$385m. Addis Fortune has reported that Derba MIDROC Cement now believes there to be adequate energy infrastructure to support the plant, following China-based Sinohydro's construction of a new US$12m power line from nearby Chanco.
When commissioned, the plant will double Derba MIDROC Cement's capacity and create 3000 new jobs in Oromia. The producer also hopes to ease the ongoing national cement shortage. The Ministry of Mines recorded domestic production of 7.6Mt in 2022, against demand of 36Mt.
Ethiopia: Berenta Cement has signed a strategic cooperation framework agreement with China-based Sinoma Cement to build a cement plant at Shebele Berenta in Amhara region. The two companies will form a joint venture to work on the unit, according to the Ethiopian News Agency. The regional government will support the initiative. The wider scope of the project also includes plans to supply products and services such as gypsum, gypsum wallboard, glass and glass fibre.
Ethiopia: China-based Sinoma International Engineering has signed an agreement with National West International Holding (WIH) Building Materials to build an industrial park development project at Dire Dawa. The project has an investment of US$600m and will include a 6000t/day cement plant and a 1000t/day lime unit, according to the Xinhua News Agency. The proposed industrial park is relatively close to the Port of Djibouti, in neighbouring Djibouti, to allow for access to raw materials and potential export markets.
WIH, a joint-venture between companies based in Ethiopia and China, already operates a cement plant at Lemi in Amhara Region.