China: First in cement
Written by Peter Edwards, Global Cement Magazine
Tuesday 23 July 2013
The People's Republic of China is the world's most populous country and the second-largest economy after the USA.1 It is also a dominant industrial power and has the largest cement industry in the world,2 although its exact size is up for debate. However large, the country's massive cement capacity has helped fuel massive government-led infrastructure and settlement projects. China is also one of the largest global cement exporters.3
The land that constitutes the modern People's Republic of China has a rich history as a leading region of economic, political, social and technological development. Today it is both the world's largest Communist state and the most populous country in the world, re-formed by the Communist Party leader Chairman Mao Zedong after the Second World War.
In the early years under Mao the country was run to a Soviet-style policy of strict central planning, which imposed significant restrictions on everyday activities. The policies that were enacted placed great strain on established economic practices, especially amongst the poorest in society. The policies of the Great Leap Forward and the Cultural Revolution contributed to large-scale famines in the 1950s and 1960s with tens of millions of deaths, although Mao's supporters point to a near doubling of average life-expectancy in China during his time in power.
In 1976 China's direction took a dramatic change of tack, with the start of economic reforms following the death of Mao in September of that year. An increasingly open economy, led by Deng Xiaoping, was encouraged from then on as part of China's revised 5th Five Year Plan.
The result of the shift from a planned economy to what became a socialist market economy has been stark. Through the 1980s, 1990s and 2000s China emerged as an industrial superpower, rising through the economic ranks to become the second-largest world economy in 2010. Economic growth averaged over 10%/yr between 1980 and 2010.5
Despite this incredible growth, China's GDP/capita only ranks 114th in the world.1 It also has the second-highest number of people living below the international US$1.25/day poverty line of any country.1
|GDP (2012 Est.)1||US$13.4tn|
|Population (2013 Est.)1||1350m|
Table 1: Summary statistics for China and its economy.
In the past 30 - 40 years China's economic growth has been achieved on the back of a large cheap labour force using China's vast mineral wealth to mass produce products for export (See Figure 1).5 Indeed, in 2010 China became the world's largest exporter, even though manufacturing employed just 45% of its workforce in 2012.1
Typical Chinese exports include agricultural products and processed mineral products like steel, machinery, textiles, chemicals, plastic products, chemicals and cement,1 although there is a large domestic service sector.
In 2010 China's economy overtook that of Japan to become the second-largest in the world after the USA.6 However, in the 2010s, questions have risen as to the sustainability of China's continued growth. As Figure 1 shows, the country's growth rate took a knock in the late 1990s when many of its local export partners experienced the Asian Financial Crisis. The recent and continuing economic malaise in Europe, the USA and other developed nations has seen this phenomenon again, decreasing the desire for Chinese products in these regions. While a new breed of Chinese domestic consumer is plugging part of this gap in demand, a larger middle class at home means higher average wages. This is leading to higher production costs. Some western companies are even in the process of bringing back manufacturing.7 Average Chinese wages have increased by a factor of five since 2000.
Looking ahead, China's long-lived one child policy means that the country is likely to be burdened with a rapidly-ageing population in the near future. This will increase its social security bill and mean a lower workforce in the future. This represents a two-pronged attack on China's current ability to manufacture items cheaply and hence its main source of foreign receipts.
Cement industry - Introduction
In 1949, at the start of the Modern People's Republic of China, China had a small formal cement industry. With poor infrastructure leading to difficult transport in remote areas, the cement industry that existed was very local. Often local towns and even villages would have small kilns to produce enough cement for their own needs. Larger communities or counties may have had vertical-shaft kilns for production and distribution over wider areas.
Through the 1950s, 1960s and 1970s small-scale county and commune cement plants multiplied in number. Accounting for just 7.6% of total production of Chinese cement in 1949, there were around 200 by 1965 (26.8% of capacity) and over 4500 (>65%) in 1980.9 In 1983 the cement sector produced 108Mt/yr, second only to the USSR in the world.
In the 1980s the small-scale cement sector began to experience decline due to a greater emphasis on installing large-scale modern, integrated cement plants and the increased capital available from the private sector. China National Building Materials (CNBM) was incorporated in 1980 to help develop the cement industry and advance building materials in general.10 Many other similar firms were formed.
It is difficult to get solid data regarding large-scale integrated capacity in China from the 1950s to 1970s but one can infer from the absolute number of small-scale local plants relative to the total capacity, that the integrated sector also expanded rapidly during this period. Figure 2 presents Chinese data that shows how cement production in China has seen a stark rise since the economy was liberalised in 1978.4,8
The decline in small-scale cement plants started in those regions closest to the industrial areas that underwent development at this time. While the small-scale sector is likely to still exist in very remote regions, obtaining a true picture of its scale in 2013 is difficult.
So far in the late 2000s and early 2010s the Chinese government has made significant efforts to reduce the number of local enterprises, often on the grounds that they are environmentally-damaging and/or inefficient.
|Guangxi Zhuang Autonomous Region||36||106.2|
|Hong Kong Special Administrative Zone||0||0.0|
|Inner Mongolia Autonomous Region||14||17|
|Macau Special Administrative Region||0||0.0|
|Ningxia Hui Autonomous Region||15||12.1|
|Tibet Autonomous Region||9||2.4|
|Xinjian Uyghur Autonomous Region||17||11.8|
Figure 3: Cement capacity and number of cement plants for Chinese Provinces, Municipalities, Autonomous Regions and Special Administrative Zones.2 Areas closest to the coast in the south and east of China are the dominant cement-producing regions, although local exceptions include Fujian Province and Hainan Province, both of which have cement capacities lower than their immediate neighbours. Data from Global Cement Directory 2013.
Cement industry - 21st Century trends
Figure 2 shows that the most rapid increase in China's cement capacity has been since 2000. Chinese statistics report that the Chinese cement industry has risen from production of 595Mt/yr at the end of 2000 to nearly 2.2Bnt/yr in 2012.11 This is due to China identifying cement as a key 'regulated industry,' the development of which would help overall economic growth.
The 11th Five Year Plan (2006 - 2010) called for a rapid overhaul of the cement industry. Through top-down investment strategies the country expanded the cement industry at an average of 11.7%/yr from 2006 to 2010 with a total investment of US$9.4bn.11
According to Chinese statistics a staggering 696 dry process cement lines were put into operation in five years. This growth rate is remarkable considering the 434Mt/yr of inefficient shaft kiln capacity, representing 55.5% of capacity in 2006, that was closed over the same period. At the end of 2010, China reported 1273 dry cement lines across the country, with a total capacity of 1255.7Mt/yr. The figures did not take into account remaining wet process and vertical shaft capacity, the inclusion of which expands China's cement industry to many thousands of producers.11
In 2010 the cement output of the top 10 cement producers in China reached 527.8Mt, with a combined 42.2% market share.11 By 2011 the cement output of the top 10 cement producers had reached 553Mt.
|Company||Clinker capacity (Mt/yr)||Market share (%)|
|China Tianrui Group||27.1||2.2|
Table 3: The top 10 Chinese cement producers in 2010, with production capacity and percentage of domestic share.11
Cement industry - In 2012 and 201312
The Chinese cement industry has been the largest in the world for at least the past 20 years and remains the largest cement industry by far in 2013. Since 2010 it has added even more dry process lines at the expense of wet process and vertical shaft kilns. China built 124 new dry-process cement production lines and added 160Mt/yr of cement clinker production capacity in 2012, according to the China Cement Association (CCA).
The CCA says that China had 1637 dry-process cement production lines with a production capacity of 1.6Bnt/yr of clinker by the end of 2012. Along with an announcement by the Ministry of Information and Technology that the country produced a total of 2.18Bnt of cement in 2012, this leaves around 600Mt/yr of wet and vertical shaft kiln capacity still active at the start of 2013.
So far in 2013 the National Bureau of Statistics has reported that cement output increased by 10.8% year-on-year to 237Mt in January and February. China's cement output grew by 8.7% year-on-year in April 2013, a 4% increase in the same month of 2012, according to the latest statistics released by the National Development and Reform Commission (NDRC). In the first four months of 2013, the country's total cement output reached 641Mt, an increase of 8.4% year-on-year from the same period in 2012. Figure 4 shows production trends for Chinese cement production in 2012 and 2013 as reported by the Chinese National Bureau of Statistics.13 The values shown on the y-axis are daily production output in Mt on a month by month basis for the past 12 months.
For comparison, the UK produced 7.9Mt of cement in 2012,14 just slightly more than China did on an average day in April 2013! This is a stark comparison that clearly demonstrates the sheer scale of the Chinese cement industry.
Cement industry - The whole story?
China claims total cement production of close to 2.2Bnt in 2012. With total global cement production of 3.6Bnt in 2012, this means that, officially, China accounts for ~60% of all cement production in the world.
Whether or not this is the whole story is up for debate. Given that China exported 'just' 16.6Mt in 2012,3 only 0.8% of its reported production value, even with a population of 1.3bn, China has an apparent cement consumption of 1600 - 1700kg/capita/yr. Although this rate is similar to what Singapore consumed during its development, even rapidly-developing nations rarely have consumption rates of over 1000kg/capita/yr.
While China is still a developing nation, its consumption rate is (literally) unbelievable. One or both of the two following situations are likely: a) Chinese cement production (and hence inferred consumption) is over-reported by Chinese authorities, or; b) China is stretching its construction sector unnecessarily with projects that lack genuine demand. Both are likely.
Indeed in November 2012 Liu Ming of the National Development and Reform Commission (NDRC) repeated warnings that China was producing too much cement.12 China's capacity utilisation was only 69% in 2012.15 Coupled to easy credit the old adage 'build it and they will come' has proved erroneous. Famous empty developments include the 20%-full New South China Mall in Dongguan (see image) and themed parts of Shanghai like Thames Town, which is modelled on provincial English towns but has virtually no occupants. Global Cement takes a wary view of all official Chinese cement statistics.
Cement industry - Financial performance12
Despite continually-increasing cement capacity and production, China's cement industry saw a wide-spread and steep drop-off in its collective financial results in 2012. This is due, in many cases, to overcapacity, rising fuel and labour costs and a gradual adjustment to more stringent environmental regulations. Indicative results are presented alphabetically by company name below.
Anhui Conch: Anhui Conch Cement, one of Asia's largest cement producers, announced that its net profit fell by 45.6% to US$1.03bn in 2012 from US$1.87bn in 2011. The drop was attributed to a decline in the price of cement and a general slowdown in the growth of cement demand in 2012. Anhui Conch's operating revenue dropped by 6.4% year-on-year to US$7.25bn in 2012 from US$7.83bn in 2011.
Asia Cement (China) Holdings: Asia Cement Corp, one of Taiwan's leading cement suppliers, said that its subsidiary in China, Asia Cement (China) Holdings Corp, saw its net profit plunge year-on-year by 71% in 2012 to US$63.7m, due to oversupply in China.
The company posted a revenue of US$1.08bn in 2012, a year-on-year drop of 18.6%. Asia Cement blamed falling product prices in the Chinese market. Asia Cement (China) had a cement production of 24.9Mt in 2012 and its cement sales were 22.7Mt.
Huaxin Cement Co Ltd: Huaxin Cement, which operates mainly in Hubei Province, announced a net profit of US$89.5m for 2012, a year-on-year decrease of 48.3%. Huaxin Cement saw its operating revenue for 2012 slide by 0.93% year-on-year to US$2.0bn.
Sinoma: China Sinoma International Engineering, one of China's leading providers of cement engineering and integration services, has said that its net profit plunged by 51.3% year-on-year to US$123m in 2012.
In 2012 the company saw its total operating revenue drop by 17.6% year-on-year to US$3.42bn. For its cement engineering and integration services business, its operating revenue fell by 15.5% to US$3.09bn.
Tangshan Jidong Cement: This company reported a net profit of US$29.1m in 2012, a drop of 88.2% year-on-year according to a company statement. Operating revenue fell by 7.1% year-on-year to US$2.36bn.
West China: West China Cement reported that its gross profit fell by 23.7% to US$109m in 2012 from US$142m in 2011. It attributed the shortfall to a reduction in cement prices, increases in electricity costs and higher overheads due to lower productivity.
The company's revenue rose by 10.5% to US$567m from US$513m. Earnings before interest, taxes, depreciation and amortisation (EBIDTA) fell by 9% to US$170m from US$187m. Cement sales volumes rose by 22% to 14.3Mt in 2012 from 11.7Mt in 2011.
Following these results, several companies have released first quarter results for 2013. Continuing the declining trend, Henan Tongli Cement warned on 10 April 2013 that its profit would fall by up to 99.6% year-on-year in the first half of 2013.
Elsewhere, Anhui Conch reported that its net profit fell by 22.2% year-on-year to US$157m for the first quarter of 2013. Its operating revenue rose by 11.8% on-year to US$1.6bn.
Shaanxi Qinling Cement reported that it made a net loss of US$6.32m for the first quarter of 2013. Its operating revenue was US$21.4m for the same period. The company predicts that its cement sales would increase and that it would make profits in the second quarter. However, it says that it will suffer 'slight' losses in the first half of 2013.
Zhejiang Jianfeng Group has reported an operating revenue of US$267m in 2012, a marginal year-on-year increase of just 0.26%. Its net profit fell by 39.2% year-on-year to US$26.5m.
In the cement plant construction sector, Sinoma International Engineering recorded an operating-revenue of US$710m in the first quarter of 2013, a year-on-year decline of 20.4%. The company's net profit for the period slid by 12% to US$38.3m.
Cement industry - Sustainability
Though large, the Chinese cement industry is also one of the most energy efficient, according to the World Business Council for Sustainable Development's (WBCSD) Cement Sustainability Initiative's (CSI) Getting the Numbers Right (GNR) data programme.16
In 2010, the most recent year for which data is available, China performed favourably in terms of specific energy consumption per tonne of clinker produced, with an average 3480MJ/t across the 5% of cement capacity that the GNR programme received data on. Brazil, which has a rapidly-developing large cement industry, performed slightly less well than China and India performed best of all regions.
In all three cases, it is the recent expansion of the industry in that nation that provides this thermal efficiency, a consequence of modern plants simply being more efficient than older ones. The comparison with the EU27 group of countries and the USA, both of which have older industries, is clear.
When it comes to CO2 emissions per tonne of clinker, China performs worst of the major regions and countries analysed, making 873kg of CO2 per tonne of clinker. This is 5% above the global average and well behind those industries that have implemented alternative fuel substitution such as Germany, where CO2 emissions were just 692kg/t of clinker in 2010.
Cement industry - Waste-heat recovery
Of the 865 waste heat recovery (WHR) installations in operation or under construction in the global cement industry in 2012, 739 (85%) were in China.17 Figure 7 shows the dominance of China in the global WHR rankings. To date, the Chinese domestic market has been served with predominantly steam-Rankine cycle systems by market-leader Sinoma and other major suppliers such as Nanjing Kesen Kenen, Conch Kawasaki and Dalian East.
The high prevelance of WHR systems in the Chinese cement industry has been brought about by the government as part of the Five Year Plan between 2006 and 2011, which stipulated that all new plants must be equipped with WHR units and that older plants must eventually be retro-fitted. The pace of new systems coming on stream has been rapid, with only 14 systems existing in 2005 but 739 in 2012. The peak year for new WHR systems was 2009, when 181 were added to the industry. The dramatic increase in the number of WHR systems is shown in Figure 8.17
However, with such rapid development of the WHR sector, the future will be different for Chinese WHR suppliers. With many plants now fitted with the units stipulated by the Five Year Plan, there will be a ever-decreasing number of projects at home in the coming years.
Possible future trends resulting from this situation could include: i) Chinese WHR suppliers selling to other large cement producing markets such as India, Turkey, Iran, Russia, the USA or Brazil; ii) Suppliers being absorbed into their parent companies; iii) Novel approaches to WHR at Chinese plants, such as the recent development of kiln shell heat capture by Sinoma.
It is likely that a mixture of diverse approaches will be used to maintain sales. In the wider cement plant manufacturing sector, Sinoma has made strides outside of China so far in 2013. It bought a stake in the Indian equipment supply industry with the acquisition of a major stake in LNV Technology Pvt Ltd, based in Chennai, India for US$23.9m.18 It has also highlighted that it is looking at acquiring targets in Europe, which suggests that it is looking at entering the technically-dominant German cement engineering sector.19
Cement industry - Alternative fuels
While it is the world leader in terms of WHR use in the cement sector, China does not appear to have a strong emphasis on using alternative fuels in cement kilns. While a major Chinese equipment supplier quoted a national alternative fuel substitution rate in the region of ~20% in 2012,20 there are indications that this is not the case.
The ~60 cement kilns (5%) polled by the CSI's Getting the Numbers Right (GNR) reporting programme indicate that a typical Chinese cement kiln burns 3480MJ/t of clinker produced.16 Taking a heating value of 25,000MJ/t for the coal burnt in the kiln,21 there is a clinker to coal ratio of 0.139 (3480MJ/t / 25,000MJ/t). This means that the industry uses 139kg of coal to make 1t of clinker.
China made 2180Mt of cement in 2012.12 If the above assumptions hold, China's cement industry, if it used just coal in 2012, would have consumed 303Mt of that fuel (0.139 x 2180Mt = 303Mt).
Substituting 20% of the coal, or 60.6Mt, with alternative fuel, which typically has a heating value of 16,000 - 20,000MJ/t depending on source and moisture content,22 would require 75 - 95Mt of alternative fuel.
Is this amount likely? China certainly produces enough waste material to satisfy this amount, producing an estimated 209Mt of municipal waste alone in 2009.23 This does not take into account agricultural or industrial byproducts and wastes such as rice husks, industrial plastic, construction wastes and waste oils. The China Statistical Yearbook 2007 states that there was 14.35Mt/yr of waste-to-heat processing capacity in China in 2007.23 This is far behind the amount of municipal solid waste produced. 60% of waste was disposed of by 'harmless treatment' (code for landfill). Far more waste-to-heat plants were anticipated for the period to 2012, up to a total capacity of 36.6Mt/yr.
Presuming an updated municipal solid waste output of 240Mt/yr, 60% landfill and 36.6Mt/yr waste-to-heat capacity, there is only around 60Mt/yr of municipal solid waste availiable. This is not at the 75 - 95Mt/yr required to hit 20% fuel substitution in the cement industry from municipal wastes alone.
While it is possible that the Chinese cement industry could be obtaining all of this municipal solid waste, the industry is not the only one that wants alternative fuels in China. There is strong competition from waste-to-heat and the chemical industry. Again, it is not possible to quantify the contribution from other types of wastes.
In conclusion, it is unlikely that the Chinese cement industry can source the alternative fuels needed for the 20% substitution rate claimed by some. It is hampered by its sheer size and competition. It is interesting, given the number of references for WHR installations quoted by Chinese suppliers, that Chinese suppliers are very quiet with respect to their alternative fuel references.
That said, China is expected to introduce rules to boost the use of wastes as alternative fuels in cement kilns, according to a China Securities Journal report. Xu Yongmo, vice chairman of the China Building Materials Federation, said at a forum that the National Development and Reform Commission (NDRC), together with other six ministries, were mulling over policies to boost co-processing in the cement industry. The wastes to be used include municipal sludge, household garbage and industrial solid waste.
Cement industry - Exports and imports
As mentioned above, China exported a total of 16.6Mt of cement and clinker in 2012.3 Its customers were primarily in East Asia, although the Middle East and Africa took 3.7Mt of Chinese cement. The total pales into insignificance given China's massive cement capacity. A summary can be seen in Table 4.
By contrast China imported very little cement and clinker in 2012.3 China imported around 0.4Mt from Japan, a strange number considering that it also exported the same amount to this country. China imported 1.6Mt from Taiwan. Taiwanese and Chinese cement firms are closely linked in some cases, with firms splitting operations in the two countries.
|Country / Region||Export (Mt)|
|Africa / Middle East||3.7|
|Vietnam, Laos, Myanmar||1.1|
Table 4: Major destinations for Chinese cement in 2012.3
Cement Industry - Environment
When one thinks of Chinese industries, typical images include large belching chimneys and cities choking under smog. While this stereotype is based in reality to a certain extent, the government is placing increasing emphasis on environmental performance in buildings, infrastructure and industry, including cement plants.12
So far the Shanghai and Beijing municipal governments have announced that they will stop cement production when air pollution reaches 'heavy' or greater levels as defined by Chinese pollution standards. The plan affects three cement plants in the Shanghai area and several others in Beijing.
Implemented in late 2012, the Beijing Municipal Environmental Protection Bureau halted one cement production line on 13 January 2013 when particulate matter below 2.5μm in diameter (PM2.5) rose as high as 900µg/Nm3 in several districts of the city. This level, recorded on 12 January 2013 is the highest recorded since Beijing began publishing the data in 2012.
In Shanghai, emergency measures will be taken when the PM2.5 air quality index rises above 200µg/Nm3 for 18 hours and the condition is deemed 'likely to continue.' The average density of PM2.5 in Shanghai for the first three months of 2013 was 73µg/Nm3. China's daily limit is 75µg/Nm3 and its annual average limit is 35µg/Nm3. The World Health Organisation's safe limit is just 25μm/Nm3.
Another aspect of its focus on the environment and specifically urban pollution is a new standard for nitrogen oxide (NOx) emissions from cement plants, drafted by the Ministry of Environmental Protection, and expected to be issued on 1 July 2013.
The new standard will cut the amount of NOx emitted by an existing cement plant to below 450mg/Nm3. Currently on average Chinese cement producers emit 880mg/Nm3 of NOx. For cement production lines that are under construction, the emission standard will be capped below 320mg/Nm3. The draft requirement is stricter than market expectations for the cap to be set at 500mg/Nm3.
In 2011, the Sichuan Provincial Government said power would be cut for cement plants that fail to achieve the NOx emissions target set by the provincial government for 2011 to 2015.
In addition to abating immediate threats, the Chinese government is in the process of implementing CO2 trading schemes across several Provinces. The city of Shenzhen is the first to experience emissions trading, one of seven areas to get such a scheme before 2014.
The Shenzhen scheme will cover construction, manufacturing and transport emissions. By 2015 China intends to have 7% of its total emissions under some form of carbon trading scheme.
The largest of the seven regional schemes is the Guangdong Emissions Trading Scheme (GETS), which will involve four cement plants from the start. While GETS is large, the rate that it will be implemented will be more restrained. There will be three years of testing (2012 - 2015), an 'improvement period' (2016 - 2020) and a proper market from 2020.
Emission trading schemes are growing worldwide, with notable examples in Australia, the European Union, the US state of California and South Korea. China's pilot emissions schemes will be watched closely. Their success or failure could determine the shape of emissions trading schemes (ETS) across China and the rest of Asia.
Elsewhere, an un-named source said on 7 June 2013 that China may set a target to reduce coal use in a heavily polluted region in the north spanning Beijing, Hebei and Tianjin by a combined 100Mt/yr by 2015. That region consumed an estimated 375Mt of coal in 2012, around 10% of the national total, with Hebei Province, China's main steel producer, alone responsible for about 300Mt.
China is also looking to reduce coal consumption in the large manufacturing regions of the Pearl River and Yangtze River deltas by 50Mt/yr each, though these amounts are small compared to overall Chinese consumption patterns.
Cement industry - Future
The Chinese economy has grown rapidly in the past three and a half decades since the dawn of Deng Xiaoping's economic liberalisation. The economy grew by an average of over 10%/yr between 1980 and 2010.
However, in the 2010s China is undergoing a transition away from an industry-based economy reliant on exports to one that is increasingly reliant on its own consumers. This is due, in part, to a reduction in demand from China's traditional export partners, many of which have become increasingly cash-strapped in the current economic malaise. While Chinese GDP grew by 9.3% in 2011,25 growth dropped to 7.8% in 2012.26
In June 2013 Barclays revised its 2013 projection for GDP growth down from 7.9% to 7.4% and also knocked its 2014 GDP growth projection down from 8.1% to 7.4%.27 It did so on the back of export growth of just 1% year-on-year in May 2013 compared to market expectation of a 7% rise for that month. With growth-rates of more than 7%, China is clearly nowhere near to a recession, although it will have to get used to slower growth in the long-term. It may need to diversify away from its traditional bulk manufacturing sectors.
Slower economic growth will have interesting effects on Chinese industrial production, including cement. SinoMarketInsight reports that it expects the Chinese cement industry to produce 2.48Bnt of cement in 2015, down from 2.18Bnt in 2012.28 This implies growth of 14% over three years, or average growth of 4.6%/yr. This rate, which would be the pride and joy of many other cement industries around the world, is actually fairly low given that China saw cement demand growth of 16.1% between 2010 and 2011. The figures are actually lower than independent analysts suggest. Imran Akram of London-based IA Cement, expects China to see cement industry growth of 6 - 7% in 2013. These forecasts both reflect the wider economic slowdown for China in the coming years. With respect to capacity the Bureau of National Statistics anticipates cement capacity in the region of 2.75Bnt/yr by 2013.28
The net effect is likely to be a more efficient cement sector that is constrained by ongoing lower demand brought about by economic factors and a backlog of cement-intensive projects that were completed on speculative demand. Similar trends have been seen as other countries have grown in terms of GDP/capita.
From an economic standpoint, the Chinese government is clear that it wishes to reduce overcapacity, although in light of increasing demand, it will be reluctant to reduce the actual size of the industry. However, a clear overcapacity of 30% at the start of 2013 gives politicians and industry leaders the scope to make changes. The closure of the remaining shaft kilns and wet process kilns, for example, is inevitable.
From a non-economic standpoint too, the industry will come under pressure to remove inefficient capacity. It will have to deal with increasing regulatory costs arising from emissions trading, pollution controls and a drive towards alternative fuels. The industry will be kept in check by the government and by a more environmentally-aware domestic population. It is likely to see a natural reduction to a smaller number of more efficient cement players.
This future scenario is certainly the one that is on the horizon for Lafarge, the largest producer in the global cement industry.15 On 5 June 2013 Lafarge announced that it would continue to invest in China, despite its overcapacity issue.
Bruno Lafont, chairman and CEO of Lafarge, said that the company will invest in China using a 'value-growth' model. This means that Lafarge is likely to invest predominantly in research, production and creating new partnerships within China. Lafont said that the company will prioritise its existing position in Southwest China but may also expand to other parts of the country.
Lafont said that China's overcapacity issues have appeared in other growing markets before, adding that inefficient and unsustainable players will eventually be phased out. Presumably he believes that Lafarge, with its global cement expertise, will be one of the players left standing.
1. CIA World Factbook website, 'China,' https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html.
2. PRo Publications International Ltd., 'Global Cement Directory 2013,' Epsom, UK, November 2012.
3. Ligthart, A. 'Global seaborne cement and clinker trade,' presentation at 2nd Global CemTrader Conference & Exhibition, London, UK, 23-24 May 2013.
4. World Bank Data Indicators website, 'GDP/capita (current US$)', http://data.worldbank.org/indicator/NY.GDP.PCAP.CD.
5. Chinability website, 'GDP growth in China 1952-2011,' http://www.chinability.com/GDP.htm.
6. BBC website, 'China overtakes Japan as world's second-biggest economy,' 14 February 2011, http://www.bbc.co.uk/news/business-12427321.
7. Forbes website, 'Why Apple And GE are bringing back manufacturing,' 14 February 2011, http://www.bbc.co.uk/news/business-12427321.
8. United States Geological Survey website, Various reports, http://minerals.usgs.gov/minerals/pubs/country/asia.html#ch. (Data contained is taken directly from Chinese sources).
9. 'The Cambridge History of China,' Cambridge University Press, Cambridge, UK, First published in 1991, pp. 523.
10. CNBM Technology website, 'History,' http://www.cnbmtechnology.com/news_index/&FrontComContent_list01-1343008063707ContId=9e469445-4d16-4260-82ed-279d5d132b19&comContentId=9e469445-4d16-4260-82ed-279d5d132b19.html.
11. Qianzhi, L. 'The development of China cement industry,'' presented at 11th Technical Seminar of Turkish Cement Manufacturers' Association, Izmir, Turkey, 11-14 October 2011.
12. Global Cement website, Various news stories, http://www.globalcement.com/news, 2012 and 2013.
13. National Bureau of Statistics website, 'Statistical data,' http://www.stats.gov.cn/english/statisticaldata.
14. Trout, E. 'Cement in the UK in 2012-2013,' in Global Cement Magazine - June 2013, Pro Global Media, Epsom, UK, June 2013.
15. Global Cement website, 'Lafarge to expand in China,' http://www.globalcement.com/news/item/1710-lafarge-to-expand-in-china, 7 June 2013.
16. World Business Council for Sustainable Development, Cement Sustainability Initiative website, 'Global cement database on CO and energy information', http://wbcsdcement.org/index.php?Itemid=74.
17. Harder, J. 'Latest waste heat utilisation trends in cement plants,' presentation at 2nd Global CemPower Conference & Exhbition, London, UK, 4-5 June 2013.
18. Global Cement website, 'Sinoma International enters Indian cement equipment market,' http://www.globalcement.com/news/item/1587-sinoma-international-enters-indian-cement-equipment-market, 11 April 2013.
19. Global Cement website, 'Sinoma considering European spending spree,' http://www.globalcement.com/news/item/1548-sinoma-considering-european-spending-spree, 27 March 2013.
20. Discussions at Global CemFuels Conferences and Global Fuels Conferences.
21. The Engineering Toolbox website, 'Standard grades of coal and heating values,' http://www.engineeringtoolbox.com/coal-heating-values-d_1675.html.
22. Values taken from various presentations at Global CemFuels Conference & Exhibition, Istanbul, Turkey, 11-14 March 2013.
23. Waste Management World website, 'WTE in China,' http://www.waste-management-world.com/articles/print/volume-11/issue-4/Features/wte-in-china.html, 2009.
24. Huffington Post website, 'A five-part strategy to cap and cut China's coal consumption,' http://www.huffingtonpost.com/barbara-a-finamore/a-five-part-strategy-to-c_b_3353230.html, 29 May 2013.
25. World Bank Data Indicators website, 'GDP growth (annual %),' http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG.
26. China Daily website, 'China's GDP growth eases to 7.8"% in 2012,' http://www.chinadaily.com.cn/bizchina/2013-01/18/content_16137028.htm, 18 January 2013.
27. Forbes website, 'After dismal exports, Barclays cuts China growth target,' http://www.forbes.com/sites/kenrapoza/2013/06/09/after-dismal-exports-barclays-cuts-china-growth-target/, 9 June 2013.
28. China market reports webssite, Report summary of: 'China cement industry report, 2012-2015 - Cement market share, size,trends,analysis,growth and forecast to 2015,' http://chinamarketreports.blogspot.co.uk/2013/04/china-cement-industry-report-2012-2015.html, 25 April 2013.