Displaying items by tag: CNBM

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.

Cement industry results from China have all told an alarming story this week: profits for the first half of 2012 look set to fall by more than 50% year-on-year.

China Resources Cement Holdings warned that its first-half earnings were down sharply. China National Materials Co. Ltd. (Sinoma), the cement equipment and engineering services provider, and Gansu Qilianshan Cement, a small Shanghai-listed cement producer, have both forecast similar drops. Sinoma blamed its drop in profit partly on an overseas project but 'interestingly' no further information was released detailing which project.

Previous to this in June 2012 Anhui Conch Cement warned that its net profit would fall by more than 50% due to weak demand and falling product prices. In May 2012 China National Building Material Co Ltd (CNBM) reported that its net profit for the first quarter of 2012 was down by 45% year-on-year. In April 2012 Jidong Cement reported an increase in its net loss for the first quarter and a year-on-year revenue drop of 14%.

Each of the Chinese big players in the cement industry have issued profit warnings of a similar scale suggesting that the Chinese market faces a uniform downturn or that a slowdown is being centrally managed. Official signs that the Chinese industry faced a slowdown emerged in March 2012 when the national growth target was lowered, analysts' predictions were released forecasting weakened profits for the nation's main producers and government officials admitted that overcapacity loomed within five years.

According to OneStone Research data on the Chinese market in 2010 CNBM, Anhui Conch, Jidong and Sinoma represented over 20% of Chinese capacity. To give these figures some perspective, in 2011 CNBM's profit was US$1.7bn. Holcim's operating profit for the same period was US$2bn and Lafarge's operating income was US$2.74bn. Even halved, CNBM's profit is a massive figure for a company with less of an international presence than the European multinationals.