Displaying items by tag: China Cement Association

Financial results for 2020 from the major Chinese cement companies are now out, making it time for a recap. Firstly, information from the China Cement Association (CCA) is worth looking at. The country had a cement production capacity of 1.83Bnt/yr in 2020. For an idea of the current pace of industry growth, 26 new integrated production lines were built in 2020 with a clinker production capacity of just under 40Mt/yr.

This is as one might expect from the world’s biggest cement market. However, the CCA also revealed that the country has over 3400 domestic cement companies, of which two thirds are independent cement grinding companies. Most of these were reportedly created during the late 2000s as dry kilns started to predominate. The CCA is concerned with the quality of the cement some of these companies produce and the lack of order in this part of the market such as regional imbalances. This suggests that the government’s attempts to consolidate the cement industry as a whole had led to the independent companies heading down the supply chain. It also raises the possibility that the government-led consolidation drive may move to grinding next. One news story to remember here is that in February 2021 the CCA called for its industry to respect competition laws following a government investigation. Later in the month it emerged that eight cement companies in Shandong Province had been fined US$35m for price fixing in a sophisticated cartel whereby the perpetrators went as far arranging a formal price management committee to regulate the market.

The CCA described 2020 as a year of sudden decline, rapid recovery and stability. Coronavirus hit cement output in the first quarter of 2020 leading to unprecedented monthly year-on-year declines before it bounced right back in a classic ‘V’ shaped recovery pattern. Despite the pandemic and bad weather later in the year, annual output rose by 2% year-on-year to 2.37Bnt in 2020 from 2.32Bnt in 2019. This has carried on into 2021 with a 61% increase in January and February 2021 to 241Mt from 150Mt in the same period in 2020. That’s not surprising given that China was suffering from the pandemic in these months in 2020 but the growth also suggests that the industry may have gone past stability and is growing beyond simply compensating for lost ground.

Graph 1: Year-on-year change in cement output in China, January 2010 - February 2021. Source: National Bureau of Statistics of China. Note that accumulated data is issued for January and February each year so these months show a mean figure.

Chart 2: Annual cement production growth by Province in 2020. Source: China Cement Association.

Chart 2 above shows cement production in 2020 from a provincial perspective. Note the sharp decline, more than 10% year-on-year, in Hubei Province (shown in dark green). Its capital Wuhan is where the first documented outbreak of coronavirus took place followed by a severe lockdown. Zooming further out, China’s clinker imports grew by 47% year-on-year to 33.4Mt in 2020. This is the third consecutive year of import growth, according to the CCA. The leading sources were Vietnam (59%), Indonesia (10%), Thailand (10%) and Japan (8%). China has become the main export destination for South East Asian cement producers and Chinese imports are expected to continue growing in 2021.

Graph 2: Revenue of large Chinese cement producers in 2020 and 2019. Source: Company reports.

Moving to the financial figures from the larger Chinese cement producers, CNBM and Anhui Conch remain the world’s two largest cement producing companies by revenue, beating multinational peers such as CRH, LafargeHolcim and HeidelbergCement. Anhui Conch appeared to be one of the winners in 2020 and Huaxin Cement appeared to be one of the losers. This is misleading from a cement perspective because Anhui Conch’s increased revenue actually arose from its businesses selling materials other than clinker and cement products. Its cement sales and cement trading revenue remained stable. On the other hand, Huaxin Cement was based, as it describes, in the epicentre of the epidemic and it then had to contend with flooding along the Yangtze River later in the year. Under these conditions, it is unsurprising that its revenue fell.

CNBM’s cement sales revenue fell by 3% year-on-year to US$19.5bn in 2020 with sales from its new materials and engineering compensating. Anhui Conch noted falling product prices in 2020 to varying degrees in most of the different regions of China except for the south. CNBM broadly agreed with this assessment in its financial results. Anhui Conch also reported that its export sales volumes and revenue fell by 51% and 45% year-on-year respectively due to the effects of coronavirus in overseas markets. The last point is interesting given that China increasingly appears in lists of major cement and clinker exporters to different countries. This seems to be more through the sheer size of the domestic sector rather than any concerted efforts at targeting exports.

One major story on CNBM over the last 15 months has been its drive to further consolidate its subsidiaries. In early March 2021 it said it was intending to increase its stake in Tianshan Cement to 88% from 46% and other related transactions. This followed the announcement of restructuring plans in mid-2020 whereby subsidiary Tianshan Cement would take control of China United Cement, North Cement, Sinoma Cement, South Cement, Southwest Cement and CNBM Investment. The move was expected to significantly increase operational efficiency of its constituent cement companies as they would be able to start acting in a more coordinated manner and address ‘fundamental’ issues with production overcapacity nationally.

In summary, the Chinese cement market appears to have more than compensated for the shocks it faced in 2020 with growth in January and February 2021 surpassing the depression in early 2020. Market consolidation is continuing, notably with CNBM’s efforts to better control the world’s largest cement producing company. Alongside this the CCA may be starting to suggest that rationalisation efforts previously focused on integrated plants should perhaps be now looking at the more independent grinding sector. The government continues to tighten regulations on new production capacity and is in the process of introducing new rules increasing the ratio of old lines that have to be shut down before new ones can be built. Finally, China introduced its interim national emissions trading scheme in February 2021, which has large implications for the cement sector in the future, even if the current price lags well behind Europe at present.

China: The China Cement Association has asked that regional associations and producers respect competition laws. It follows the outcome of a State Market Supervision Administration investigation into the behaviour of certain provincial cement associations and six cement companies. The association has called for a thoroughgoing removal of collusive behaviours alongside continued cement overcapacity reduction.

China: The Ministry of Industry and Information Technology (MIIT) has released tougher draft rules regulating how cement producers should decommission old production capacity before they build new capacity. Under the new guidelines cement companies must retire at least two tonnes of outdated capacity for each tonne of proposed new capacity in areas classified as environmentally sensitive, according to Caixin Global. Previously, the ratio was 1.5:1. In non-environmentally sensitive areas, at least 1.5 tonnes of obsolete capacity should be retired for every tonne of new capacity, an increase from the current ratio of 1.25:1.

The proposed rules are currently open for public comment. However, cement companies are reportedly hurrying to obtain approval for new capacity projects approved under the current, easier regulations. The Chinese Cement Association has commented that some of the newly proposed projects ‘challenge’ the effectiveness of the government’s intent with the new measures and it has recommended a ban on production swaps across regions. The new rules also include a clause intended to restrict the use of so-called ‘zombie’ capacity in the swapping process by limiting eligibility to productions lines that have been operated for two or more consecutive years since 2013. Such redundant capacity is reportedly mainly concentrated in northeast China, Inner Mongolia and Xinjiang. No date for the ratification of the new rules has been disclosed.

Consolidation of the Chinese cement industry looks set to take a major step forward this week. China National Building Material Company (CNBM) announced that it is restructuring its cement production assets and companies under one subsidiary, Tianshan Cement. The move is significant since CNBM is the world’s largest cement producer, with a production capacity of over 500Mt/yr. That’s more than the total output of any single country except China. It’s also between a quarter and a third of national capacity domestically.

Little information has been revealed except that it concerns most of CNBM’s cement producing subsidiaries. Namely: China United Cement, South Cement, North Cement, Southwest Cement and Sinoma Cement. Note that this leaves out Ningxia Building Materials and Qilianshan Holdings, although some commentators have suggested that they may be merged in later on. It was announced to stock markets as a proposal with a ‘letter of intent of cooperation’ exchanged between CNBM and Tianshan Cement. CNBM will remain the controlling shareholder of Tianshan Cement after the restructuring. However, the assets concerned - the cement companies are still being discussed and considered. The aim of the reorganisation is to ‘facilitate resolving industry competition’ among the subsidiaries of CNBM.

The move is expected to significantly increase operational efficiency at the cement companies as they start to act in a more coordinated manner. It also fits the government-requested drive for the industry as a whole to consolidate and follow supply-side reform initiatives by, hopefully, eliminating old production assets and other measures. Indeed as CNBM’s president Peng Shou said in the company’s report for 2019, “Production overcapacity of the industry has not been fundamentally resolved. The task of cutting production overcapacity was arduous, and the supply-side structural reform remains the major task.” The company says it is committed to building a three-pillar development platform of cement, new materials and engineering services.

How much more operational efficiency the world’s largest cement producer will need to do this is a key question. In 2019 the sales revenue from its cement business rose by 12% year-on-year to US$18.7bn and its earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 19% to US$5bn. Growth at this level is novel to western-based multinational cement producers! So the implication might be that CNBM is hoping to turbo-charge its financial performance before (or if) the serious government-forced supply side cuts occur or a general economic slowdown happens so that it can return to ‘normal’ Chinese performance afterwards.

The Chinese Cement Association presented a good overview of the history of CNBM that you can read here. The quick version is that it’s the embodiment of the Chinese government’s desire to build and merge its cement industry since 2005. The latest restructuring with Tianshan Cement is the latest chapter in this 15 year story. What the reorganisation means internationally is ‘probably not much’ in the short term. Better coordination between CNBM’s cement companies could have implications in the longer term if they acted together on an international strategy, such as a strategy on exports for example, or if group-wide suppliers were agreed upon.

That’s all on China but finally if readers were not able to join us for Global Cement Live last week on 23 July 2020, we recommend watching the playback of Arif Bashir, Director (Technical/Operations) of DG Khan Cement Nishat Group Pakistan. He gave a great overview of Pakistan’s cement industry and the challenges it is facing and overcoming. Be sure to tune in for this week’s guest speaker, Regina Krammer from Loesche who will be discussing how the coronavirus crisis will change communications in the sector.

To register for Global Cement Live visit: www.globalcement.com/live

Data is starting to emerge about how the Chinese cement industry has coped with the economic effects of government action regarding the coronavirus. National cement industry output fell by 29% year-on-year to 150Mt in the combined months of January and February 2020. Output then picked up to 149Mt in March 2020, a drop of 17% compared to March 2019. These are massive figures, larger than the annual output of most countries, but they give some idea of what shutting down economies does to demand for cement and concrete.

Graph 1: Year-on-year change in cement output in China, April 2018 - March 2020. Source: National Bureau of Statistics of China. Note that accumulated data is issued for January and February each year so these months show a mean figure.

Graph 1 above gives the general picture of changes in cement output in China over the last couple of years. Growth fell in early 2018 as the government implemented its supply-side reforms, including measures such as industry consolidation and peak shifting. This improved in the second half of the year and throughout 2019. January and February output has been steady for the last few years, possibly due to peak shifting, but this year the trend was massively more pronounced. In March 2020, meanwhile, output fell by 17% compared to a rise of 17% in 2019. On the demand side, reporting from the Chinese Cement Association reveals that national infrastructure investment (excluding electricity) decreased by 19.7% year-on-year in the first quarter of 2020. National real estate development investment fell by 7.7% to US$310bn.

The figures above are for the whole of China whilst the outbreak was centered in Wuhan in Hubei province. The government implemented its toughest public health measures in this city and the surrounding Hubei province, with other regions using social distancing and tracking methods to various degrees. The Chinese Cement Association explains that, once other cities in Hubei province were released from lockdown, construction projects were allowed to resume but that progress was limited due to a lack of workers. Three weeks after measures were relaxed, the average shipping rate for cement producers was only 60% in these outer regions. In Wuhan the situation was more stark with demand for cement at only 20% of expected levels at the time the lockdown ended on 8 April 2020. Data from the Hubei Cement Association reports that on 30 March 2020 only half of Hubei province’s 57 clinker production lines were producing cement. The rest were suspended. To compound the problems here once logistics networks started to reopen imports of cement from other provinces flooded in taking advantage of price differences.

Few if any of the larger domestic producers have released their first quarter financial results for the first quarter of 2020. Huaxin Cement has said that its sales fell by 36% and that this is expected to cause a profit drop of 46% year-on-year to US$100m. Shanshui Cement has said likewise, although it has not released any forecasts. In its annual report for 2019 released in early April 2020, Anhui Conch said that the coronavirus had exerted a ‘short-term negative impact’ on the group’s business due to the slowdown in supply and demand in the construction materials industry. CNBM also acknowledged the situation in its 2019 report saying that it would, ‘impact on economic activity.’ CNBM’s subsidiary BNBM, a gypsum wallboard manufacturer, has released a forecast for the first quarter predicting a 90% drop in net profit due to poor sale volumes.

How this can inform the cement industries of other countries around the world that have enacted restrictions on their populations is unclear. China, as ever, is an exceptional outlier both economically and as a cement producer. Plus, the severity of how a country enacts a lockdown is crucial here. If the early reports above are indicative then half of Hubei’s clinker lines were forced to suspend production, demand for cement fell by 80% at the time the lockdown ended and imports headed in once transport networks were reopened. Issues were also noticed with labour shortages. Forewarned is forearmed as they say. The next point of focus will be how fast the Hubei and Chinese cement industry recovers from this shock. More on this as we have it.

In case you’ve missed it there’s been a boom in cement demand in China during the current quarter. Henan province saw a run on cement prices in November 2019 that the local press described as ‘crazy.’ Some companies were issuing price adjustments twice a day, according to the China Cement Association. The article on the CCA’s website also includes a video showing dozens of cement trucks queuing at a mill with the caption ‘all the plants are like this, don’t ask the price any more.’

The CCA’s blamed the situation in Henan on pollution controls on production and a rebound in cement demand. Weather-based pollution controls enacted in late October 2019 shut-down or limited production at 66 of the province’s 72 clinker production lines. Builders were then forced to source cement from neighbouring Shanxi, Hebei and Shaanxi provinces. At the same time demand for cement from real estate and infrastructure sectors picked up in the fourth quarter of 2019. Following advice from the local cement manufacturers’ association, the provincial government relaxed the rules on peak shifting that normally run from November to February in a bid to control the situation. Cement prices in Henan hit a high in mid-to-late November 2019 and have since subsided somewhat.

Nationally, Chinese cement prices hit a high in late November 2019 beating the highest level in 2018 and also setting the highest price since 2011. The key regions driving the increase have been in central and south China, including Guangxi, Guangdong and Henan. One more thing to note here is that peak shifting or seasonal shutdown of production capacity has different dates in different provinces. So, potentially, the situation could repeat itself if unexpected demand continues and provincial governments fail to monitor the situation.

Recently a couple of economic indicators in China have suggested a recovery in infrastructure spending in recent months, supporting increased cement demand. Data from Wind quoted by the Financial Times newspaper suggests that the cement price rose by 15% since September 2019 in large cities. Reinforced steel (rebar) and aggregates prices have increased similarly. At the same time the South China Post newspaper has reported a growth in the Purchasing Managers’ Index (PMI), an indicator of manufacturing activity that could also point to renewed infrastructure spending. Central government is also reported to be taking measures to support provincial infrastructure development.

If true then this may be creating some pretty direct lessons in economic interventionism. The Chinese government appears to be stimulating demand for cement via infrastructure growth while restricting production at the same time. Cement prices have reacted in a ‘crazy’ fashion. The real tension here is between two conflicting desires: protecting the economy and protecting the environment. The state planners may be grappling with this one for a while.

The publication of CNBM’s financial results presents a good opportunity to take stock of the Chinese cement industry in the first half of 2019. Looking at the big picture first, cement sales rose by 5% year-on-year to 1.03Bnt in the first half of 2019 from 0.98Bnt in the same period in 2018. Graph 1 below shows the sales over the last five years since 2014. Generally, sales are decreasing each year but there has been some variation in the half-year periods.

Graph 1: Cement sales in China, 2014 – 2019. Source: National Bureau of Statistics of China.

As the China Cement Association (CCA) pointed out in its summary for the first half of 2019, the cement industry ‘swelled in volume and price’ as industry efficiency grew but that the growth rate dropped ‘significantly’ compared in 2018. By region, as Graph 2 shows, variation can be seen between the south-east of the country where growth was slow or even fell compared to stronger performance elsewhere. Cement production increased by above 20% in Jilin, Shanxi, Shandong, Tibet and Heilongjiang and by over 10% in Hebei, Gansu, Tianjin, and Liaoning. However, it fell in Hainan, Beijing, Qinghai, Guizhou, Guangxi, Hunan, Guangdong and Ningxia. Most of these changes were attributed to either rising or falling demand for cement, except for Jilin where reduced imports from neighbouring provinces pushed up its demand. In most of these latter regions it attribute the decline to falling demand for cement.

Graph 2: Cement production growth by province in first half of 2019. Source: China Cement Association.

Other points of note from the CCA include the surge in imports to China. Imports of cement and clinker rose by 149% year-on-year to 8.97Mt in the five months from January to May 2019. Vietnam supplied 68% of this followed by 11% from Thailand. On the production side, 10 new production lines with a total capacity of 15.5Mt/yr were commissioned in the period. These were fairly scattered across nine provinces, in Shanxi, Anhui, Hubei, Fujian, Guangxi, Hunan, Guizhou, Gansu and Yunnan respectively.

Sales and profits were supported by growing demand and prices on the corporate side. CNBM’s operating income for its cement businesses grew by 16% to US$8.14bn from US$7.04bn. Its adjusted profit increased by 40% to US$2.76bn from US$1.98bn. Anhui Conch’s sales rose by 17.9% to US$2.15bn from US$2.11bn. It blamed poorer profits in the south of the country on adverse weather leading to weakened demand.

The weaker sales in the south could be seen in China Resources Cement’s (CRC) results with its turnover down by 6% to US$2.22bn from US$2.36bn. Likewise, its earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 8.5% to US$820m from US$896m. The majority of its cement plants are based in Guangxi, Guangdong and Fujian. Jidong Cement was also reported as having received US$30m in subsidies from the government during the first half of 2019 in relation to its ‘daily activities.’

As is usual for these kinds of roundups the dynamic in China is between government industrial policies, like peak shifting and pollution mitigation, and local demand and price trends. One of the latest spins on peak shifting, for example, is a rating system that is being considered to decide which companies should be subject to production limits and for how long. General cement sales are slowly falling each year but the rise of imports into the word’s biggest cement producing nation (!) mark an interesting trend. Also, it may not be connected, but lots of those provinces with falling demand so far in 2019 are those on the south coast facing the heavy clinker exporting nations of South-East Asia. Given the decisiveness with which the Chinese government dispensed with imports of waste materials under its National Sword initiative since 2017, those countries importing cement to China should beware. It could change very quickly. The Chinese cement market is never dull.

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.

Ethiopia: Representatives of the Ethiopian and Chinese cement industries have signed a memorandum of understanding at the 2017 Ethio-China Cement Forum. Industry Minister Alemu Sime said that the forum was ‘vital’ to bring Chinese skills and experience into the local industry, according to the Ethiopian Herald newspaper. Representatives from the Chinese Cement Association, the Ethiopian Cement Association and local producers were in attendance.

China: The China Cement Association has asked the Ministry of Industry and Information Technology to speed up the consolidation process in the local cement industry. According to documents seen by the South China Morning Post the cement body wants the ministry to consolidate at least 60% of the country’s cement production capacity into 10 producers by 2020. The association made its proposals in July 2016 and has since chased the ministry for a response.

Association data shows that China may have to cut 390Mt/yr of production capacity and cut 130,000 jobs in the next five years in order to maintain an adequate balance between supply and demand. Larger cement plants could also be required to exchange production quotas and seek cross holdings in equity stakes.

To aid the consolidation process, existing cement companies will pool together US$3bn in a restructuring fund. This is expected to aid the larger cement producers, including Anhui Conch, Huaxin Cement, Qilianshan Cement and Sichuan Shuangma Cement.