Friday saw the news that many have long suspected: China is producing too much cement. Liu Ming, an official with the department of industry within the National Development and Reform Commission, announced that China faces national overcapacity in the next five years.
For anyone used to reading the permanently good news from China's cement industry this is a massive jolt. The natural reaction to dealing with industrial news from a command-style economy is to assume that everything is 'airbrushed'. This then demands the question: how much trouble is the Chinese cement industry really in?
Despite persistent rumours querying how long China's unparallelled growth could last, official responses have only appeared in the last two months. First the environment ministry announced stricter rules regarding nitrogen oxide emissions from cement plants in February 2012. Commentators suggested that the move could wipe out a third of the industry's profits. Shortly afterwards FLSmidth, entered the Chinese environmental control technology market.
In early March 2012 Premier Wen Jiabao lowered China's growth target for 2012, signalling public political acceptance of an inevitable economic 'soft landing'. Then in late March 2012 analysts' reports emerged predicting that each of China's main producers would suffer weakened profits in 2012. Only CNBM, China's biggest producer, appears to have bucked this trend. It announced that it expected its net profit to jump more than 100% compared to 2011. However the general uncertainty regarding statistics from China throws doubt on how realistic this forecast may be.
Yet before we give up hope it's worth remembering that opportunity abounds in a market as gargantuan as China. The rest of 2012 will be an interesting period for the Chinese cement industry.
