Displaying items by tag: Henan

The stock market price of Tianrui Cement crashed by a staggering 99% last week. On 9 April 2024, during the last 15 minutes of trading at the Hong Kong Stock Exchange, the price of shares in the company dropped from around US$0.64 to below US$0.01. Its market capitalisation swung from US$1.8bn to US$18m in a quarter of an hour. The cement producer then suspended trading shares the following morning. It said trading would remain halted until it made a formal announcement about the situation. At the time of writing that announcement is still forthcoming. The question on everyone’s minds is, “What happened?!”

On its website Tianrui Cement describes itself as “one of the 12 national cement enterprises supported by the Chinese government.” It is part of Tianrui Group and it listed itself on the Hong Kong Exchange in late 2011. By the end of 2020 it had 22 clinker production lines and 59 cement grinding units with a total cement production capacity of just under 58Mt/yr. It describes itself as the “leading clinker producer in Henan and Liaoning Provinces” and the ninth biggest clinker producer by capacity in the country.

Unfortunately, as reported by Global Cement Weekly earlier in April 2024, the cement market in China was tough in 2023. This has continued into the first quarter of 2024 with cement output falling by 12% year-on-year to 337Mt. Tianrui Cement, like many other China-based cement producers, reported falling sales and profits in 2023. Its revenue decreased by 29% year-on-year to US$1.09bn from US$1.58bn and it made a loss of US$87.6m compared to a profit of US$62m. Its cement sales volumes fell by 9% to 25.2Mt and it noted that the average price also fell by 22%. It blamed the fall in revenue on the lower volumes and prices. Profits and earnings suffered in turn as it couldn’t cut its costs fast enough.

Aside from the general poor state of the property market in China there has been little information about what actually happened to Tianrui Cement on 9 April 2024. Reuters reported speculation amongst financial sources that the company may have become subject to a margin call. In this situation an investor that has borrowed money to invest in shares has to provide additional funds if the value of the shares fall below a certain point. Bloomberg said that the controlling shareholder Li Liufa and his spouse jointly own approximately 70% of the company. It noted the risks of companies with a high concentration of shareholders and those that use shares as debt collateral. In this situation a large sale of shares could potentially trigger a panic as there might not be enough buyers.

Within China the Financial Associated Press (CLS) reported that three other companies listed on the Hong Kong Exchange had also experienced severe stock market volatility at the same time as Tianrui Cement. None of these other companies are in the building materials sector. Following the drop in its share price, Tianrui Cement told local media that the company was operating normally. Its spokesperson wondered whether the plunge in share value was due to small shareholders selling up. Coverage of local media by the China Cement Association explored the theory that the market was jittery about the poor state of the cement industry in China. Suspicions about the company’s debt structure were also raised.

From a western point of view the meteoric rise of the cement industry in China over the last 20 years has always carried the fear of a hard landing once the period of growth ended. The trick for the government and cement manufacturing is how to transition to lower levels of cement production without causing a recession. So, extreme stock volatility for a major cement producer in China is exactly what a cynical external observer might expect. China has a couple of exit routes up its sleeve though from the state-controlled nature of its economy, to how it approaches its net zero commitments, to the unreliability of its data, to exporting production capacity overseas and so on. This leaves us waiting to see what Tianrui Cement has to say to the market about what happened and what happens next. One share price crash for a cement producer might be forgivable. Two, however, might be seen as a sign of something else.

China: China Tianrui Group has forecast its full-year profit and total comprehensive income as US$187m - 218m in 2021. This corresponds to a 30 - 40% year-on-year decline from its US$312m profit and comprehensive income in 2020. The company attributed the expected decrease to a year-on-year rise in coal prices and decline in cement prices, the latter due to flooding-related demand disruptions in Henan Province.

China: China Tianrui Group has reported gross CO₂ emissions per tonne of cement of 910kg/t in 2019 in its latest sustainability report. Nitrogen oxide and particulate matter emissions were 7862t and 1380t, year-on-year decreases of 13% and 4% respectively. Its water consumption intensity decreased by 42% year-on-year to 1.12Mm3.

The group operates 20 clinker production lines and 59 cement grinding production lines. Its production capacity of clinker and cement was 28.4Mt tonnes and 56.7Mt respectively in 2019. Its plants are based in Henan, Liaoning, Anhui and Tianjin, with Henan and Liaoning accounting for the largest proportion.

China: Henan Province has announced a planned rise in water and energy tariffs for cement producers that fail to meet current emissions standards and clean transportation requirements. Reuters News has reported that companies subject to the measures will pay US$0.07 – US$0.14/m3 more for water and up to US$0.01/kWh more for electricity. Henan enacted ‘ultra-low’ emissions limits of 10Mg/Nm³ of dust, 50Mg/Nm3 of NO_x and 100Mg/Nm³ of SO₂ in 2018. Cement plants in the province produce 105Mt/yr of cement.

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.

China: Tianrui Cement’s sales revenue rose in the first half of 2018 due to an average price rise year-on-year of 22%. Its revenue grew by 13.8% to US$629m from US$553m in the same period in 2017. Profit increased by 17% to US$82.6m from US$71.6m.

Cement sales volumes fell by 4.7% to 13.3Mt from 12.6Mt due to government imposed production limits in Henan province and a decrease in infrastructure and property investment. In Henan and Anhui the company’s cement sales fell by 7.1% to 10.3Mt but it Liaoning and Tianjin it rose by 4.5% to 3Mt. the cement producer also reported that its cost of sales rose by 12.3% to US$721m due to rising coal prices and other input costs.

China: China Tianrui Group Cement Company has reported that its revenue rose by 14% to US$1.40bn in 2013 from US$1.22bn in 2012. Its gross profit remaining static at US$305m in 2013 and its earnings before interest, taxes, depreciation and amortisation rose slightly to US$356m. The Chinese cement producer attributed the rise in revenue to increasing sales volumes of cement in response to a 'proactive' pricing strategy and a general increase in demand driven by rural development and the demand from certain large-scale infrastructure projects, such as the South-North Water Transfer Project.

Sales of cement rose by 19% year-on-year to US$1.30bn in 2013. Sales of clinker fell by 23% to US$107m. By region, the company saw its revenue in its Central China region rise by 13% to US$1.01bn. In Northeastern China its revenue rose by 16% to US$385m. By volume, the company sold 36.9Mt/yr in 2013, a rise of 41.4% from 2012.

In 2013 Tianrui acquired one 1.2Mt/yr clinker production line and six cement production lines with a combined production capacity of 5.3Mt/yr in Liaoning and Henan provinces, at a cost of US$109m.