Displaying items by tag: China Cement Association
China: Cement output fell by 12% year-on-year to 387Mt in the first quarter of 2022. Data from the Ministry of Industry and Information Technology also shows that cement output volumes fell by 5.6% year-on-year to 187Mt in March 2022, according to the Xinhua News Agency. The China Cement Association has blamed this on the latest local coronavirus wave, limited construction project funds and poor weather.
China - Happy New Year?
19 January 2022The cement output data for December 2021 is out for China and we’re starting to see the effects of a rather tough autumn. Lower coal supplies, consumer prioritisation for energy supplies, higher input costs and a slowing real estate market all contributed to a reduction in output.
Graph 1: Cement output by quarter in China, 2019 –2021. Source: National Bureau of Statistics of China.
As can be seen in Graph 1 above, output took off after the shock of the coronavirus outbreak receded at the start of 2020. This then continued until mid-2021 when things changed. Overall cement out was 2.36Bnt in 2021, an annual drop of nearly 1.2% compared to 2.39Bnt in 2020. Note that the 2021 output figure is about average for China’s annual output since it hit a high of nearly 2.5Bnt in 2014. However, the months from September 2021 onwards have seen output drops of above 10% year-on-year. It’s been from a high base but if it were to continue it could signal a more ominous trend. As the China Cement Association (CCA) describes it, cement output started to slow from May to August 2021, in part due to seasonal factors and repeated local outbreaks of Covid-19 around the country. This trend then started to accelerate for the reasons mentioned above.
Looking at energy first, coal future prices in China hit a near-decade high in October 2021 due to a variety of market disruptions. This looked set to worsen at the start of January 2022 when the country’s biggest overseas supplier, Indonesia, banned exports for a month due domestic shortages. However, data has since emerged this week from the National Bureau of Statistics showing that Chinese coal production grew by 4% year-on-year to 4.07Bnt in 2021, with faster monthly growth, as the industry ramped up output to meet demand.
On the real estate market, the CCA views it as having run ‘hot’ and then ‘cold’ in 2021. At the start of the year the government introduced new government regulations (its so-called three red lines of policy) to reduce borrowing in the sector. The real estate market subsequently declined, not withstanding certain hot-spots. In the western press this process has been symbolised by the fortunes of Evergrande and its debts of over US$300bn. It started missing bond payments in September 2021 before formally defaulting in December 2021. As the Financial Times newspaper reported in a summary on the situation, in late December 2021, Evergrande said that work at 92% of its projects, which number in the hundreds across China, had resumed. Separate data though showed that its housing sales had slumped by 99% year-on-year in the same month. The newspaper has compared the Chinese government’s approach to Evergrande to its handling of conglomerate HNA Group, which was eventually declared bankrupt in 2021 after a slow disintegration. In its opinion the government may try to control the collapse of Evergrande through a series of quiet interventions over a long period. However, Evergrande’s debts appear to be double those of HNA Group’s and there may be further risks from other companies in the real estate sector. All of this presents risks to local cement output.
To round up, Chinese cement output in the second quarter of 2022 is the figure to watch to assess how well the industry is coping with its current issues. Production is likely to slow in the first quarter due to seasonal factors such as the New Year holidays, winter shutdowns and the hangover from the problems in the autumn. Once the spring arrives then we may have a glimpse of how cement companies are coping with coal supplies, the real estate market and all the rest.
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CO2 emissions by the Chinese cement sector
01 December 2021Holcim has announced today that it has concluded the sale of its 75% stake of its Zambian business to Huaxin Cement. Meanwhile, in Tanzania last week, Huaxin Cement officially commissioned a cement grinding line at its Tanzanian Maweni Limestone plant. China produces about half the world’s cement and some its producers are expanding overseas as domestic growth dwindles. These actions and others place increased scrutiny on sustainability issues for Chinese cement producers. Readers therefore may be interested to note the publication last week of a list of the 100 largest Chinese corporate emitters of CO2 in 2020.
The Chinese Cement Association (CCA) website carries some highlights on the work by from the cement sector’s perspective. China Venture Carbon and Caixin compiled the list of publicly listed companies using a mixture of freely available data such as sustainability reports, by adjusting public data or by making estimates. The companies covered released 4.42Bnt of CO2 in 2020 or 45% of the Chinese total. The 15 cement firms in the top 100 were responsible for 893Mt of CO2 or around 9% of the national total. This ratio is in keeping with the usual 5 – 10% share of global CO2 emissions attributed to cement production.
Graph 1: Global gross CO2 emissions by large cement companies in 2020. Source: China Venture Carbon/ Caixin, corporate sustainability reports. Note: Includes all reported direct and indirect emissions for all company business lines.
Many of the Chinese cement companies already release sustainability data each year so this data isn’t exactly new. Yet seeing it all in one place like this is illuminating. Unsurprisingly, on the cement side the ranking is a list of producers ordered roughly by production capacity. The world’s biggest cement producer CNBM is also the cement company that emits the most CO2. It released 255Mt of CO2 in 2020. If it were a country, for example, it would be around the 20th largest emitter in the world with a similar output to France or Thailand. In China CNBM is then followed by Anhui Conch, BBMG, Tangshan Jidong Cement and China Resources Cement (CRC).
Graph 1 above also includes the total gross CO2 emissions for other large cement producers outside of China in 2020 for comparison. These figures are estimates compiled from company sustainability reports and they attempt to cover all direct and indirect emissions across all business lines not just cement. Similar to the Chinese list, generally, the less CO2 a cement company emits on this graph the less cement it produces. It is also worth noting that 2020 was an unusual year given the outbreak of the coronavirus pandemic. Generally this reduced global manufacturing output but there was wide regional variation.
The other interesting point to note from the China Venture Carbon-Caixin project is that they re-ranked their list by carbon emission intensity, measured as emissions as a proportion of revenue. This totally changes the ordering. Where before the 15 cement companies were fairly evenly spaced out amongst power generators, coal producers and petrochemical companies, now all of them are in the top 50. As the CCA notes in its commentary, “The emission intensity of electricity and cement is much higher than that of other industries. The top 30 companies in terms of carbon emission intensity are almost all power and cement companies.” Whilst most of these companies are probably safe for the time being, given their size, what this might mean for smaller Chinese cement companies with high emission intensity in light of the Chinese government’s energy efficiency drives might be seen as worrying.
Promoting gross CO2 emissions by cement producers is generally avoided by cement producers because it makes them look bad! It prompts an argument with the environmental lobby and doesn’t recognise the essential nature of cementitious building products to society. However, to their credit producers are publishing the data. The preferred metric for the non-Chinese multinationals is specific emissions per tonne of cement as this better shows the hard-work made to reduce emissions. However, this risks a credibility gap from the outside world, if specific emissions go down but total emissions keep rising each year. In the meantime though the more data the better from China and everywhere else.
Energy costs mounting for the cement sector
20 October 2021UltraTech Cement, Taiheiyo Cement, Cimtogo and the Chinese Cement Association (CCA) have all been talking about the same thing recently: energy prices.
India-based UtraTech Cement reported this week that coal and petcoke prices nearly doubled in the second quarter of its current financial year, leading to a 17% rise year-on-year in energy costs. Japan-based Taiheiyo Cement released a statement earlier in October 2021 saying that due to mounting coal prices it was planning to raise the price of its cement from the start of 2022. It principally blamed this on increased demand in China and a stagnant export market. It added that it was ‘inevitable’ that prices would rise further in the future. Meanwhile in West Africa, Eric Goulignac, the chief executive officer of Cimtogo, complained to the local press that the reason the company’s cement prices were going up was due to a 250% increase in the cost of fuels for the Scantogo plant and an increase in the price of sea freight of over US$35/t for transporting gypsum and coal.
Other places where the cost of energy has been biting cement producers include Turkey and Serbia. In the former, Türk Çimento, the Turkish Cement Manufacturers' Association, warned in June 2021 that the price of petcoke had nearly tripled over the previous year. Whether it was connected or not, the Turkish Building Contractors Confederation (IMKON) organised a strike in September 2021 due to high costs. The confederation claimed that the price of cement had tripled over the last year. In Serbia electricity prices have risen sharply in recent months in common with much of Europe. Local press reported comments last month from President Aleksandar Vučić saying that an unnamed cement producer had warned of a 25% rise in the price of cement if electricity prices remained high. In the UK the Energy Intensive Users Group (EIUG), a network of lobbying groups for heavy industry including cement, has been holding talks with the government on how to cope with growing energy costs. Finally, in the US, Lhoist warned in September 2021 that is was going to increase the cost of all of its lime products from the start of November 2021 due to increasing gas prices. These are just some of the reactions by cement and lime producers to the current global energy market. No doubt there are many more.
The current global energy crunch has widely been attributed to the waking up of economies following coronavirus-related dormancy in 2020 with supply failing to meet demand. Gas prices have risen to record highs and this has promoted electricity producers to switch to coal in the US, Europe and Asia. This in turn has put pressure on industrial users as both electricity and coal prices have grown and governments have taken action in some cases to protect domestic users. In Europe price pressure has lead to reductions in ammonia and fertiliser production. Power cuts have been reported in China and India.
In China a variety of factors have converged to create a crisis. These include shutting down coal mines on environmental and safety grounds, anti-corruption measures and even promoting mine closures to facilitate clean skies for national events such as the Communist party’s 100th anniversary. Disruption to import sources such as a ban on Australian coal on political grounds, flooding in Indonesia and a renewed coronavirus outbreak in Mongolia can’t have helped either. Thermal coal futures traded on the Zhengzhou Commodity Exchange hit a high of US$263/t on 15 October 2021 marking a 34% rise through the week and the largest weekly growth since trading started in 2013. The International Energy Agency estimates that coal demand in China grew by over 10% year-on-year in the first half of 2021 but coal production increased by just over 5%.
Industrial users have suffered as energy supplies have been rationed and producers asked to cut output. In September 2021 cement output fell by 12% year-on-year to 205Mt from 233Mt in September 2020. This is the lowest monthly figure for September since 2011. It’s also not the usual direction of double-digit rate of change that the Chinese cement sector is used to. The CCA attributed this mainly to energy controls, power shortages and high coal prices in Jiangsu, Hunan, Zhejiang, Guangdong, Guangxi, Yunnan, Shandong and elsewhere. Cement output for the first nine months of 2021 is still ahead of 2020 at 1.77Bnt compared to 1.67Bnt but it’s been slipping noticeably since July 2021.
This will leave energy users, including cement producers, watching the weather forecasts rather closely this winter. Should the Northern Hemisphere suffer a cold one then energy prices such as coal will reflect it. Industrial users may also become subject to energy rationing in many places. The knock-on effect of this then will be higher cement prices. However bad the winter does turn out to be though we can expect more cement companies trying to explain bashfully why their prices are going up. On the plus side any producer that can diversify its energy mix through solar, alternative fuels or whatever else is likely to be doing so soon if they are not already.
Update on China, September 2021
01 September 2021It’s time for a macroscopic view of the Chinese cement sector this week with the release of the half-year financial results by some of the larger Chinese cement producers. On the national level the picture so far in 2021 has been one of continued recovery from the coronavirus lockdowns at the start of the year and then a slowing market as state controls on real estate speculation started to take effect. However, poor weather in the spring and mounting raw material prices appear to have compounded the effects of the real estate regulations, leading to price falls.
Cement output data from the National Bureau of Statistics of China in Graph 1 shows that local production took a knock in the first quarter of 2020 due to the coronavirus pandemic and this strongly recovered in the same period in 2021. The market recovered fast in mid-2020 and so the year-on-year growth for the second quarter was less in 2021. Output on a monthly basis remained ahead year-on-year from April 2020 and stayed ahead until May 2021. However, output in June 2021 was behind the figure in June 2020 and the figure for July 2021 was behind both July 2020 and July 2019.
Graph 1: Cement output by quarter in China, 2019 – mid-2021. Source: National Bureau of Statistics of China.
The Chinese Cement Association (CCA) was lamenting falling cement prices at the start of July 2021. It blamed the situation on slowing infrastructure development in some regions, increasing government restrictions on real estate development, especially poor mid-year weather and higher input prices such as for steel. China Resources Cement (CRC) expanded upon the point about increasing real estate regulations in its financial results for the first half of 2021 explaining that the Chinese government has been promoting a policy that aims to ensure that “residential properties are not for speculation” including controls on the financing of real estate. Later in mid-August 2021 the CCA reported that prices were recovering in east and central-southern regions although the situation remained poor in Guizhou province with shipments down to 60% of normal levels. Production control measures are expected to be implemented to stabilise the situation.
Graph 2: Sales revenue of large Chinese cement producers in first half of year, 2019 – 2021. Source: Company reports.
On the corporate side the sales revenue from some of the large Chinese cement producers mostly show the usual gap-tooth pattern that coronavirus has created everywhere as the market recovered. Notably Anhui Conch managed to avoid falling sales year-on-year in the first half of 2020. However, the CCA’s observation above about rising input costs is visible in the falling profits of some (but not all) of the companies covered here. For example, Anhui Conch’s net profit fell by 7% year-on-year to US$2.32bn in the first half of 2021. It blamed this on a significant rise in the price of raw coal. CRC also reported falling profits attributable to increased production costs.
CNBM reported an increase to cement and clinker sales volumes of 7.6% to 177Mt and concrete sales volumes by 13.4% to 52Mm3. It noted that, “In the first half of 2021, the national cement market showed the characteristics of high price level fluctuation adjustment.” From January to April 2021 local fiscal policy boosted demand for cement but from May 2021 continuous heavy rainfall and increasing bulk commodity prices slowed infrastructure project development. Anhui Conch’s cement and clinker sales volumes for both production and trading grew by 11.5% to 208Mt. It reported stable market demand in eastern, central and southern regions but noted falling prices in the west.
Looking ahead, two issues, among many, to consider are carbon trading and imports. The former has been coming for a while and was launched formally online nationally in mid-July 2021 for the power generation industry. The carbon price was nearly Euro7/t in late July 2021 in China compared to around Euro53/t in the European Union. Cement and steel are expected to join the Chinese national scheme in the next phase although analysts believe that issues such as data gathering, permit allocation rules, accounting standards, sector reduction targets and related financial support all need to be improved before this can happen. Imports are a connected issue and it has been interesting in recent months to hear financial analysts point out the risks, for example, of major exporting nations such as Vietnam relying on China so much. The CCA reckons that China imported 33.4Mt of clinker in 2020, an increase of 47% year-on-year, with 60% of this derived from Vietnam. With the Chinese government trying to tackle cement production overcapacity and meet growing environmental targets, imports look set to become a ‘hot ticket’ issue. In this context it is telling to see talk from the CCA of ensuring standards for imports such as verified carbon emissions. Naturally, the imports that could be trusted the most will probably be the ones from plants that Chinese cement producers have built themselves overseas. As waste importers into China found out previously, relying heavily on one market with strong state controls carries considerable risks. Cement exporters in South-East Asia take note.
Huaxin Cement targets East Africa
16 June 2021The latest piece of China-based Huaxin Cement’s global ambitions slotted into place this week with the news that it is preparing to buy plants in Zambia and Malawi. Its board of directors has approved plans to spend US$150m towards acquiring a 75% stake in Lafarge Zambia and US$10m on a 100% stake in Lafarge Cement Malawi. The move will gain it two integrated plants with a combined production capacity of 1.5Mt/yr in Zambia, and a 0.25Mt/yr grinding plant in Malawi.
This latest proposed acquisition represents the next step for Huaxin Cement in Africa following its purchase of African Tanzanian Maweni Limestone from ARM Cement in mid-2020. The company has also been busy along the more traditional Belt and Road Initiative land routes in Asia. It started up the kiln at its new 2Mt/yr Jizzakh cement plant in mid-2020. Elsewhere in Central Asia it runs two plants in Tajikistan and one plant in Kyrgyzstan via various indirectly-owned subsidiaries. While in South Asia it runs a plant in Nepal and in South-East Asia it runs one in Cambodia. If the plans in Zambia and Malawi pay off then it will give the Chinese producer a growing presence in East Africa, with plants in three countries.
The China Cement Association ranked Huaxin Cement as the country’s fifth largest clinker producer in 2021 with an integrated capacity base of just under 63Mt/yr. Domestically, the company operates 57 cement plants and most of these are based in the Yangtze River Economic Belt region. In 2020 it reported cement and clinker sales of 76Mt, a small decrease from 2019. Its operating income fell by 6.6% year-on-year to US$4.58bn and profit dropped by 12% to US$1.2bn. This performance was blamed on the emergence of Covid-19 at the start of 2020 and then floods later in the year.
Compared to the other larger Chinese cement producers, Huaxin Cement roughly appears to be holding rank with its overseas expansions. The leaders, CNBM and Anhui Conch, hold subsidiaries with plants in South-East and Central Asia and CNBM’s engineering wing, Sinoma, has a far bigger reach, building plants all over the place. Information has been scarce since mid-2020 on the long heralded 7Mt/yr plant in Tanzania due to be built by Sinoma and local subsidiary Hengya Cement. At that time local residents in Mtimbwani, Mkinga District were reportedly being compensated for their land. Other than this, one of the other big players internationally is Taiwan Cement. In 2018 it invested around US$1.1bn for a 40% stake in Turkey-based Oyak Cement. As well as a presence in Turkey this also gave it a share of plants in Portugal in 2019 when Oyak completed its acquisition of Cimpor.
Elsewhere this week, carrying some of the themes above with expansion in Central Asia, two new integrated cement plant projects were announced in Kyrgyzstan and Turkmenistan respectively. Meanwhile, Italcementi said it will invest Euro5.0m to restart clinker production at its Trentino cement plant in Sarche di Madruzzo, Italy. The unit has been operating as a grinding plant since 2015. This might be viewed as an unexpected decision considering the high local CO2 price but it shows some level of confidence in the local market by Italcementi and its parent company, HeidelbergCement. The next step will be when or if a European producer decides to build a brand new integrated plant in Italy or elsewhere.
Update on China: March 2021
31 March 2021Financial 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.
Ministry of Industry and Information Technology toughens Chinese cement production capacity reduction rules
23 December 2020China: 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.
CNBM consolidates its cement businesses
29 July 2020Consolidation 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