Displaying items by tag: China Cement Association
What happened to Tianrui Cement?
17 April 2024The 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.
Update on China, April 2024
03 April 2024We turn to look at the Chinese cement sector now that the larger China-based cement producers have released their financial results for 2023. In summary, national output of cement has continued to fall and many of the bigger companies are reporting weakening sales and profits. Yet this trend appears to be slowing, with a few of the producers managing to grow revenue, profits and sales volumes.
Graph 1: Cement output in China, 2018 to 2023. Source: National Bureau of Statistics of China.
Data from the National Bureau of Statistics of China shows that cement output fell by 4.5% year-on-year from 2.11Bnt in 2022 to 2.02Bnt in 2023. This is a slower rate of decline than the 10.4% drop reported between 2021 and 2022. However, it is worth noting that the rate of decrease in output on a half-year basis fell strongly in the first half of 2023 but remained similar in the second half of the year. In its commentary, the China Cement Association (CCA) said that the country’s real estate development investment fell by 10% year-on-year to US$1.53tn.
Graph 2: Sales revenue from selected Chinese cement producers. Source: Company financial reports.
Graph 3: Sales volumes of cement and clinker from selected Chinese cement producers. Source: Company financial reports.
Unlike in 2022 the two graphs above show that not every cement producer has lost revenue or sales volumes of cement in 2023. CNBM chair Zhou Yuxian used the phrase ‘storms and challenges’ to describe the situation faced by the world’s largest cement company. He left president Wei Rushan to deliver the bad news that the cement industry as a whole faced “insufficient demand, weakening expectations and weakening off-peak season characteristics” along with surpluses and high costs. He said that the cement sector in China saw its profit fall by 50% to US$4.42bn in 2023, its lowest figure since the mid-2000s.
In comparison CNBM Group’s revenue fell by 10% year-on-year to US$29bn and profit by 52% to US$534m. This was principally due to losses from the group’s basic building materials division, the section that makes heavy building materials, including cement. Alongside this, it pushed on with its supply-side structural reforms, implemented staggered peak production and worked on sustainability initiatives. These included preparations for the national carbon emissions trading scheme. Anhui Conch’s results showed that it managed to increase its revenue but its sales volumes of cement dropped and its profits fell by 33% to US$1.48bn. It achieved the boost in revenue by growing its trading business.
Of the smaller companies covered here, only Huaxin Cement managed to grow its revenue in 2023. It appeared to pull this off by growing its concrete and aggregate business domestically whilst growing the business overseas at the same time. The share of its international business grew to 16% in 2023 from 13% in 2022. Major overseas acquisitions in 2023 included Oman Cement and InterCement’s subsidiaries in Mozambique and South Africa. More recently Huaxin Cement has also been reported by local media as the preferential bidder for InterCement’s business in Brazil, although no formal announcement has been made. Of the rest, Tangshan Jidong Cement, CRBMT and China Tianrui all reported declines in sales revenue and profits. Tangshan Jidong Cement did manage to grow its cement sales volumes, but reported heightened competition in the north and north-east of China where most of its plants are located.
With the first quarter results for 2024 on the way soon, the CCA has been bracing itself and the sector for more bad news. It noted that national cement prices during the last week of March 2024 were about 1% lower than during the same week in 2023. Prices were lower in East, Central and South China, although they had increased in Chengdu and Sichuan. The CCA is worried that a price war, either nationally or regionally, will make a bad situation worse. It has called on cement producers to accept that the slowdown of infrastructure development in the country has led to a decline in cement demand and that this is the new normal. Apart from the usual watchwords of ‘self-discipline,’ ‘overcapacity reduction’ and ‘supply-side reforms’ the association has suggested that cement companies look for growth internationally and look to the leadership of associations to help everyone adapt to the new market situation. China’s sales output of cement may be starting to stabilise, but the market has a way to go yet to adapt to the new reality.
Global Cement and Concrete Association and China Cement Association to collaborate for cement decarbonisation
01 February 2024World: The Global Cement and Concrete Association (GCCA) has signed a new agreement with the China Cement Association (CCA). The agreement constitutes an historic ‘partnership pledge’ to accelerate cement decarbonisation globally in 2024 – 2026. The partners says that their collaboration will contribute to the development and launch of the upcoming China Cement Carbon Neutrality Roadmap. Equipment supplier Sinoma International Engineering and the European Cement Research Academy (ECRA) will also help to develop the roadmap. The GCCA previously launched its own global net zero roadmap in 2021. Together, GCCA and CCA members account for 90% of global cement production in capacity terms.
GCCA CEO Thomas Guillot, said “The world needs leadership and collaboration like never before, especially on addressing the key issue of our time, climate change. This agreement between the China industry and the global industry is a signal to the world that we stand ready to deliver the essential decarbonised building materials that our planet needs. Cement and concrete enable the key infrastructure, thriving and resilient communities, clean water, safe homes and the shift to clean energy that are essential to a future sustainable world.”
CCA Executive president Kong Xiangzhong said “This important agreement marks a win-win cooperation, and shows where we can collaborate effectively to bring insights, technical know-how and greater focus to our shared decarbonisation mission. I am sure this will create a mutually-beneficial and long-term partnership that will be crucial in building a more sustainable world.”
Update on China, March 2023
29 March 2023The Chinese cement sector had a tough time in 2022. This was confirmed this week as the large domestic cement producers released their financial results. Revenue was down, profits fell and cement sales volumes tumbled. The key causes included the continuation of the country’s zero-coronavirus policy, the declining real estate market and rising input costs for raw materials such as coal. Demand for cement withered and so did the fortunes of the cement companies.
Graph 1: Cement output in China, 2018 to 2022. Source: National Bureau of Statistics of China.
Data from the National Bureau of Statistics of China shows that cement output fell by 9.8% year-on-year to 2.13Bnt in 2022 from 2.36Bnt in 2021. The greater decrease was in the first half of the year rather than the second. The China Cement Association (CCA) said that this was nearly the lowest output in the last decade and the largest decline since 1969 ! The National Bureau of Statistics of China also pointed out in a release that, despite investment in fixed assets increasing by around 5% in 2022 and national infrastructure spending growing by 9%, real estate development investment dropped by 10% to US$1.46Tn.
Graph 2: Sales revenue from selected Chinese cement producers. Source: Company financial reports.
Graph 3: Sales volumes of cement and clinker from selected Chinese cement producers. Source: Company financial reports.
The cement producers warned in their forecasts that the results for 2022 were going to be rough and so it came to pass. China National Building Material (CNBM)’s revenue fell by 16% year-on-year to US$33.4bn in 2022 and Anhui Conch’s sales fell by 21% to US$19.2bn in 2022. Although, Tangshang Jidong Cement and Huaxin Cement reported declines of income or revenue in single digits. Profits halved for all of the companies covered here. Various combinations of the reasons covered above were cited for the situation.
What is more interesting are the responses some of the producers are making and what has gone well. CNBM, for example, is pinning its hopes on better staggered peak production and infrastructure projects. Anhui Conch, meanwhile, appears to have been diversifying its business by increasing both its concrete and solar power production capacity significantly in 2022. It was also announced that it plans to spend US$2.81bn on capital expenditure projects in 2023. China Resources Cement (CRC) said it had optimised its presence in South China through selected acquisition and divestments. Huaxin Cement has continued its focus on overseas markets with its share of operating revenue originating from outside China rising to 13% of the group’s total in 2022 compared to 8% in 2021. It also mentioned a number of unnamed projects around the world steadily drawing nearer to action. Sure enough, the group announced earlier in March 2023 that it was buying a majority stake in Oman Cement.
As for 2023, the CCA forecast in January 2023 that cement demand would be flat or slightly down. However, at the same time, provincial changes to the real estate market are expected to improve market conditions and infrastructure development will further drive demand for cement. The CCA identified that the cement sector’s production overcapacity could become an issue with lower demand. In 2022 the national clinker production utilisation rate was 65%, a fall of 10% from that in 2021. It also pointed out that peak-staggered production had actually helped cement producers generally to cope with smaller declines in profits compared to less well regulated industries.
Problems such as the zero-coronavirus policy, the real estate market and rising raw material costs have made the country’s production overcapacity issue worse. Changes are being made such as the national abandonment of the coronavirus lockdowns in late 2022, and, as mentioned above, the real estate market is being modified. In addition to this, various environmental changes are on the way, as the government works towards its sustainability goals. The country remains the largest cement producer in the world. Yet the message here is that we should expect more of the same for the cement sector in China in 2023.
China: Data from the National Bureau of Statistics of China shows that cement output fell by 12% year-on-year to 1.56Bnt in the first nine months of 2022 from 1.78Bnt in the same period in 2021. However, output started to pick up on a monthly basis in September 2022, with a year-on-year increase of 1% to 207Mt. Despite national increases in infrastructure development, the China Cement Association revealed that real estate development investment decreased by 8% to US$1.44tn in the first nine months of 2022.
Update on China, August 2022
31 August 2022The larger cement producers in China have published their half-year financial results and the numbers are looking grim. Starting with data from the National Bureau of Statistics of China, cement output in the country fell by 14.5% year-on-year to 979Mt in the first half of 2022 from 1.14Bnt in the same period in 2021. This is the lowest first half output figure since 2012. The decline on a monthly basis started in May 2021 and has carried on consistently since then. Rolling cumulative annual output hit a low of 2.18Bnt in July 2022, the lowest figure since at least the start of 2019 and well before the coronavirus pandemic started.
Graph 1: Cement output in China, 2018 to 2022. Source: National Bureau of Statistics of China.
The financial figures from the cement producers have mostly followed this trend. Of the companies covered here, Anhui Conch’s drop in sales revenue was the most distinct at 30% year-on-year to US$8.14bn. However, Jidong Cement actually managed to increase its revenue and Huaxin Cement’s decrease was fairly small, possibly due to its growing stable of overseas projects. None of these companies could avoid falling cement and clinkers sales volumes though. Again, Anhui Conch is the outlier here with a larger fall in sales volumes proportionally at nearly 40% compared to around 20% for the rest. Chen Bolin, the deputy secretary-general of China Cement Association (CCA), told the 21st Century Business Herald newspaper that of the 20 or so listed cement companies that have published their half-year reports by the end of August 2022, more than half had reported falling sales revenue and net profit and only one company had managed to increase its net profit.
Graph 2: Sales revenue from selected Chinese cement producers. Source: Company financial reports. Note: Cement revenue shown only for CNBM & Taiwan Cement.
Graph 3: Sales volumes of cement and clinker from selected Chinese cement producers. Source: Company financial reports.
The financial reports from the Chinese cement companies detailed here have been fairly light on the reasons for the current state of the sector. Repeated coronavirus outbreaks, instability in the real estate market, a lack of funding for infrastructure projects, growing energy and raw materials costs, pressure on prices and a generally weak economy have all been blamed for the situation. Media channels outside of China have continued to scan the country’s real estate sector for signs of collapse following Evergrande’s problems in 2021. However Chen Bolin diplomatically held back by describing the real estate market as not yet stabilised and a drag on cement demand. Instead he hoped that large-scale infrastructure projects would offer some form of relief.
One last point to note, that both the CCA has made and could be seen in some of the company reports, is that some of the Chinese cement companies are already starting to diversify their businesses. This is in parallel to what some of the larger western-based multinational cement producers have also been doing in recent years with forays into concrete, light building materials and construction chemicals. CNBM already has large concrete, light building materials and engineering subsidiaries. However, Huaxin Cement and Anhui Conch have also started to branch out recently into aggregates, concrete and new energy generation, in the case of the latter company. Things may get worse before they get better, especially depending when or if the Chinese government decides to act on the real estate market. However, whatever kind of adjustment the cement sector may face, there are some signs present already of what some of the companies may do next.
Update on China, May 2022
11 May 2022China Daily ran a story this week entitled “Steel and cement don't reflect China's growth story any more.” The piece reassured English-language readers that the country’s economy is moving on and that recent falling production of cement simply reflected the “profound changes China's economic structure is undergoing.” Profound is the right word here given that China is home to the world’s largest cement sector.
Graph 1: Cement output by quarter in China, 2019 - 2022. Source: National Bureau of Statistics of China.
Data from the Ministry of Industry and Information Technology shows that cement output fell by 12% year-on-year to 387Mt in the first quarter of 2022. This compares to 7% and 15% falls in the third and fourth quarters of 2021 respectively. On an annual cumulative rolling basis, output previously hit a low of 2.22Bnt in March 2020 as the initial coronavirus outbreak was brought under control. Output then surged to a high of 2.53Bnt/yr in April 2021 before it started to fall in the autumn of 2021. On a monthly basis, output volumes fell by 5.6% year-on-year to 187Mt in March 2022.
As covered in last week’s column (GCW 555), the financial results from the larger Chinese cement producers have also suffered in the first quarter of 2022. CNBM’s total operating revenue fell by 1% year-on-year to US$7.29bn in the first quarter of 2022. Anhui Conch’s revenue fell by 26% to US$3.85bn and China Resources Cement’s (CRC) turnover fell by 18% to US$889m. Of these three only CRC has released cement sales volumes. Its sales volumes of cement and clinker decreased by 34% and 12% respectively.
In its own analysis, the China Cement Association (CCA) has summarised the current situation as one of rising costs, falling demand and declining benefits. The latest large-scale coronavirus lockdowns and a poor real estate market have hit demand. Rising energy and freight prices have increased the cost of cement. Together, higher costs and falling demand have hit the profits of the cement producers. CNBM’s net profit, for example, fell by 9% to US$420m. Regionally, the CCA observed that the losses of the northern-based producers had increased and that the profits of the southern producers had started to fall sharply also. Another interesting point it made was that the year-on-year decline in March 2022 was slower than compared to the first quarter as a whole and that high levels of inventory may have made March 2022 look worse than it actually was. The association is now pinning its hopes upon demand and prices picking up again later in the second quarter after the current quarantine controls are eased and the government curbs high coal prices.
The CCA’s take doesn’t seem unreasonable, although the first quarter of 2022 was previously deemed to be a continuation of the trouble the Chinese cement sector experienced in the autumn of 2021. Possibly the first quarter has turned out worse than expected but the monthly output in March 2022 has started to look like it might be a tail-off from the worst. The period to watch remains the second quarter of 2022. Looking more widely, energy shocks from the war in Ukraine couldn’t be easily predicted but coal prices were already becoming a concern in the autumn of 2021. China’s renewed zero-Covid policy meanwhile is starting to look unpalatable both economically and socially. Throw in a continued slowdown of the real estate sector and China Daily’s profound pronouncement about the future of cement may prove accurate.
Many first quarter financial results for cement producers are out already and what can be seen so far deserves discussion. The first observation is that the sales revenues of Chinese companies have suffered compared to their international peers. As can be seen in Graph 1 (below) CNBM increased its sales slightly in the first quarter of 2022 but Anhui Conch and China Resources Cement (CRC) had significant falls. Stronger results from CNBM’s non-cement production subsidiaries released so far suggest that the parent company’s slow performance is likely due to the cement market. The China Cement Association has reported that national cement output dropped by 12% year-on-year to 387Mt in the first quarter of 2022. It blamed this on the latest local coronavirus wave, limited construction project funds and poor weather.
Graph 1: Sales revenues in the first quarter of 2022 from selected cement producers. Source: Company financial reports. Note: SCG data is for its building materials division only.
Outside of China sales revenue growth has been better with Holcim and Dangote Cement leading the companies presented here. Holcim attributed its success to “strong demand, acquisitions and pricing”. Demand and pricing have been familiar refrains in many of the results reports this quarter. The undertone though has been the destabilising effects upon energy prices by the ongoing war in Ukraine. Holcim’s head Jan Jenisch summed it up as navigating “challenging times, from the pandemic to geopolitical uncertainty.” The producers with operations in the Americas and Europe seem to have coped with this so far mostly due to resurgent markets. Quarterly sales revenue growth for Holcim, CRH (not shown in the graphs) and Cemex each exceeded 10% year-on-year in both of these regions.
The regionally focused companies presented here have suffered more. India-based UltraTech Cement said that its energy costs grew by 48%, with prices of petcoke and coal doubling during the period. Nigeria-based Dangote Cement reported that its group sales volumes were down 3.6% mainly due to energy supply challenges in Nigeria. Internationally, its operations relying on cement and clinker imports – in Ghana, Sierra-Leone and Cameroon – were also hit by high freight rates caused by global supply chain issues. Thailand-based SCG said that national demand for cement demand fell by 3% due to negative geopolitical effects causing inflation, a delay to the recovery of tourism and a generally subdued market.
Graph 2: Cement sales volumes in the first quarter of 2022 from selected cement producers. Source: Company financial reports.
It’s too early to read much into it but one final point is worth considering from cement sales volumes in the first quarter of 2022. They have appeared to fall for the companies that have actually released the data. The reasons for CRC in China and Dangote Cement in Sub-Saharan Africa have been covered above. Holcim’s volume decline was 2% on a like-for-like basis and the others were all very small changes.
To summarise, it’s been a good quarter for those cement producers covered here with operations in North American and Europe. Energy instability caused by the war in Ukraine so far seems to have been passed on to consumers through higher prices with no apparent ill effect. The regional producers have suffered more, with the Chinese ones having to cope with falling demand and the others finding it harder to absorb mounting energy costs and supply chain issues. Plenty more first quarter results are due from other cement companies in the next few days and weeks and it will be interesting to see whether these trends hold or if others are taking place.
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.
And finally... Global Cement Weekly invites readers to explore Austria-based W&P’s virtual tours of three of its plants. The presentation is a fancier version of the panorama photo applications one can find on most smartphones but with some added mapping and visualisation settings. It’s a fantastic addition to the set of community outreach tools a cement company can use. Check it out here: https://alpacem.com/360/