Liu Ming of the National Development and Reform Commission (NDRC) once again stated the obvious this week: China is producing too much cement.

He made the same warning on overcapacity that has been made all year. Officials from the NDRC have recommended stricter controls on new capacity, faster mergers and acquisitions, elimination of out-dated capacity and faster industry upgrades. Unsurprisingly this is exactly the line that China's Ministry of Industry and Information Technology (MIIT) was hawking in its 12th Five-year Plan (2011-2015) for the country's building materials industry that it released back in 2011.

So what's actually happened since last time Liu Ming played Cassandra?

Back in July 2012, at the time of the half-year financial reports, it looked like Chinese cement producers were facing profit gaps of around 50%. Now it looks worse. Major producer China National Building Material Co (CNBM) has reported a drop in net profit of 40% to US$575m for the nine months to 30 September 2012. Anhui Conch has reported a drop in net profit of 57% to US$632m. China National Materials Co Ltd (Sinoma) has reported a 76% drop in net profit to US$48.8m for the same period. Jidong Cement reported a 83% drop in net profit to US$38.6m.

In 2010 Chinese cement production was 1.87Bt. In 2011 it was 2.06Bt, according to Chinese state-released statistics. From January to September 2012, the country produced 1.59Bt of cement, a year-on-year increase of 6.7%. For the full year of 2012 it is estimated that China will produce 2.8Bt/yr. However, according to the NDRC production growth have fallen to 6.7% in 2012 compared to 11.4% in 2011. Capacity is still rising whilst profits are plummeting.

At the start of 2012 the Chinese Vice Minister of Environment Protection, Zhang Lijun, announced that the ministry plans to introduce stricter rules on NOx emissions from cement plants. At the time it was reckoned that the move could wipe out a third of the industry's total net profits. Then in September 2012, industry reports suggested that the government was now going to set nitrogen oxide emissions to 300mg/m3, below the international standard of 400mg/m3. It was estimated that only about a third of producers would be able to afford the necessary upgraded equipment to meet the requirement. Then, also in September 2012, the Guangdong Emissions Trading Scheme (GETS) was launched, which might offer another way of restraining production.

In summary: profits are tumbling, production is probably slowing and new controls are as-yet unbinding. Yet, perhaps Liu Ming repeated his warning for one particular audience who can make a difference. On 8 November 2012 the Chinese Communist Party holds its 18th national congress to decide the new leadership. Producers like West China Cement are certainly hoping this shakes things up. It recently announced that it was waiting for new infrastructure projects to be approved to swallow up its growing surplus.

Lafarge UK's release of its 2011 Sustainability Report for its cement business this week presented some bold headline figures. Key statistics for the period covering 2009 - 2011 included a 17% reduction in CO2 emissions through the use of solid recovered fuels (SRF), a 17% reduction in the use of electricity and a 26% cut in emissions to air.

For a European producer this is some positive news in a time of gloom. Looking a little deeper into the report reveals the usual ambiguities that can arise with interpreting statistics. Lafarge UK's fossil fuel consumption actually rose by 9% from 285,000t in 2009 to 311,000t in 2011. CO2 emissions to air rose by 15% from 2.31Mt to 2.65Mt. In terms of emissions per tonne of Portland Cement Equivalent (tPCE), the figures are more encouraging with fossil fuel use decreasing from 87kg/tPCE to 82kg/tPCE (6%) and CO2 emissions remaining stable at 704kg/tPCE. These figures are good considering that Lafarge's production increased from 2009 to 2011 due to construction for the London 2012 Olympics.

As mentioned in Edwin A R Trout's article 'The British cement industry in 2011 and 2012' the move to refuse-derived fuels (RDF) has consistently made the news with projects at several Lafarge plants. RDF use at Lafarge UK plants rose by 48%, from 92,758t in 2009 to 137,143t in 2011. Each of the alternate fuels – tyres, waste-derived liquid fuel, processed sewage pellets (PSP), meat and bone meal, SRF – roughly increased its unit share per tonne of cement produced by 2%.

Lafarge UK is clearly reacting to uncertain input costs and preparing for any further future green taxes. It failed to meet its 2011 target rate for RDF substitution of 31% (it reached 29%) but it has raised the target to 35% for 2012. It is also continuing to secure permits for PSP use at its Dunbar plant and SRF use at its Hope plant, although by the time this is approved Hope may be someone else's facility. However, the key question is, how can Lafarge push alternate fuels? It will be interesting to see how much Lafarge UK's fuel mix can be reduced in cost over the next five years.

However bad the multinational cement financial reports get as they tighten their operations remember that it could be worse. For example, they could face the challenges the East African Portland Cement Company (EAPCC) has confronted over the last year. Reuters broke the news this week that EAPCC had widened its loss to US$9.96m due to poor sales, a major plant breakdown and labour unrest. All of this occurred in a construction economy demanding ever more cement.

EAPCC has seemed surrounded by controversy over the last year starting with a conflict of interest issue raised over a change in clinker supply in December 2011. This then led to the removal of the company's directors by the Kenyan government, which in turn led to a strike. In the chaos a worker was shot and wounded. On top of that the report reveals that there was a 'major' breakdown in one of the plant's kilns. It's a wonder that EAPCC didn't make a greater loss in the 2011-2012 year.

Demand for cement in Kenya and in the other countries in the east African region is growing. Data from the Kenya National Bureau of Statistics in December 2011 showed that cement consumption in Kenya rose by 12% in the nine months to September 2011. As reported last week in GCW72, ARM Cement (formerly known as Athi River Mining Ltd) reported a net profit of US$9.71m for the first nine months of 2012. This marks a 328% growth in profit compared to the same period in 2011 when it made US$2.26m. Meanwhile this week it was announced that Ethiopia is about to open its second cement plant in the town of Dire Dawa. More plants are on the way. Over in Tanzania, the Tanzania Investment Centre (TIC) announced that the country's cement deficit surpassed 1Mt since 2011.

As has happened elsewhere in Africa, notably in Nigeria and South Africa, local producers are pushing hard to restrict foreign imports as they grow their own capacity. In September 2012 the East Africa Cement Producers Association (EACPA) made warnings on the issue. The chairman of EACPA at the time was none other than the managing director of the EAPCC. In addition potential investors should take note that Kenya will hold its next general election in March 2013. Over 1000 people died in the protests following the 2007 election as well as the displacement of over 500,000 people.

Given this growth in protectionism, international producers who want to expand are being forced to seek riskier territories. Pakistan's Lucky Cement, a major importer of cement to Africa, is doing exactly this. It announced this week that it is entering into joint ventures in plants in DR Congo and Iraq. However these projects perform, Lucky Cement must be praying that they don't end up looking like the last year that EAPCC has endured.

News from Mexico and the US over the past week confirms the contrasting fortunes of the cement industry in the 'Old World' and the 'New World,' of Europe and North America. First, Cemex reported a significantly reduced loss of US$203m in its third quarter, compared with a loss of US$730m in 2011. However, the firm's European units again faired worse than other regions. 

The European problem is not limited to Cemex, but while much of the continent has seen a poor 2012 so far, North America appears to be in the midst of a construction renaissance. HeidelbergCement estimates US cement sales growth of 8-11% in 2012. In Mexico, a strong and growing industry, it has also been announced that the Mexican billionaire Carlos Slim had partly financed a new US$300m plant in Mexico, due to go into production early in 2013.

In light of this apparent upward trend in North America, it is surprising that France's Lafarge has agreed to sell two more of its US cement plants, this time to Eagle Materials. If the Eagle deal is approved, it will represent (along with the May 2011 sale of Lafarge's Roberta and Harleyville plants to Cementos Argos) a continued and substantial reduction in Lafarge's presence in the US. In under 18 months, Lafarge will have offloaded four plants, taking its total from 12 to eight.

Lafarge's decision to sell to Eagle seems like an attempt to meet its own debt-reduction schedule. Yet to do this it may be losing important territory in North America. This can't have been an easy decision.