Displaying items by tag: China Resources Cement

Cement price rises by the major Chinese cement producers boosted sales revenue and profits in 2018. This is quite a trick, given that overall cement sales in the country have fallen by 11% year-on-year to 2.17Bnt in 2018 from a high of 2.45Bnt in 2014.

Graph 1: Cement sales in China, 2009 – 2018. Source: National Bureau of Statistics China.

On the corporate side most of the major Chinese producers issued positive profit alerts towards the end of 2018 and this has been followed up by (mostly) glowing financial reports. Data from the National Development and Reform Commission in February 2019 showed that the profits of local cement companies more than doubled to US$64bn in 2018 compared to 2017. As mentioned above, this has been fueled by price rises. In December 2018 the average price of cement was 10.6% higher than in December 2017.

This has translated into a 19% year-on-year rise in sales revenue at China National Building Material Company (CNBM) to US$32.6bn in 2018 from US$27.4bn in 2017 and its profit grew by 44% to US$2.09bn from US$1.46bn. Anhui Conch’s performance was even better. Its revenue grew by 70.5% to US$19.1bn from US$11.2bn. However, differences emerge between the two companies in terms of cement sales volumes. CNBM’s sales volumes fell by 2.4% to 323Mt. However, Anhui Conch’s sales volumes increased by 25% to 368Mt. This may not be in line with the government’s plans to scale down production but it does fit the industry consolidation model, as the company acquired Guangdong Qingyuan Cement in 2018. The results from other producers such as China Shanshui Cement, West China Cement, Tianrui Cement and China Resources Cement all tell similar tales.

If the figures from the National Bureau of Statistics China (NBS) above are accurate then this is a drop of over 300Mt of cement sales over four years. This is more than the cement sales of every other country except India. Indeed, it’s more cement than some continents make! It marks the deceleration of the Chinese industry since 2014 and represents a major achievement. However, whether it is enough remains to be seen. After all, sales of over 1500kg/capita are still way above the consumption curve for developed Western-style economies. Yet, imports of cement to China from Vietnam rose in 2018, suggesting that the price rises are being driven by shortages of cement!

China is undoubtedly an exceptional case, as its economic star has blossomed in the last few decades and it has literally built itself into history. Yet one might expect its consumption to be around 1Bnt/yr, a per-capita level more similar to Spain and Italy prior to the financial crash. In other words, even if the recently observed 5% year-on-year contraction is maintained, the Chinese industry would only reach this (still very high) level by the mid 2030s. However, continued national development, mega-infrastructure projects, a shift to more exports and China’s unique market could hold the consumption per capita figure higher.

Meanwhile, Chinese producers are commissioning more and more projects outside of China. Notably, CNBM saw its cement sales everywhere except for the Middle East and China. Success abroad is not guaranteed. The story in the years to come will be the balance between projects at home and those abroad.

All the major multinational cement producers reported growing sales in 2018. Yet, the big growth was found outside of Europe, with China Resources Cement (CRC), Ultratech Cement and Dangote Cement all posting sales revenue growth of above 10%. Similarly, cement sales volumes continued to rise. CRC and Ultratech Cement were the standouts here, with the latter benefitting from its acquisitions including, most recently, Binani Cement. Concrete sales volumes were the same, rising for all the companies with the exception of Buzzi Unicem. It suffered market issues in Italy and Germany.

Graph 1: Sales revenue from selected multinational cement producers in 2017 and 2018 (Euro billions). Source: Company financial reports.

Graph 2: Cement sales volumes from selected multinational cement producers in 2017 and 2018 (Mt). Source: Company financial reports.

Graph 3: Ready-mixed concrete sales volumes from selected multinational concrete producers in 2017 and 2018 (Mm³). Source: Company financial reports.

With the major Chinese producers, including CNBM and Anhui Conch, yet to release their annual results for 2018, CRC is included in this roundup to give an idea of how that market is performing. Both CNBM and Anhui Conch have released profit alerts anticipating bumper results in 2018 though. This is likely due to boosted local cement prices.

The major story for the European-based producers was one of asset sales and debt reduction. LafargeHolcim returned to positive income in 2018 with a focus on its Strategy 2022 programme. HeidelbergCement’s earnings were hit by poor weather in the US and insufficient divestments. Cemex, although based in Mexico, retains a significant European presence and so it included here. It suffered from poor sales outside of its base in Mexico and the US. CRH continued on its trajectory as the world’s biggest building materials company with solid sales and earnings growth. Interestingly though given its expansion strategy in recent years CRH’s debt to earnings before interest, taxation, depreciation and amortisation (EBTIDA) ratio remains better than the other three majors above, even after its purchase of Ash Grove Cement in mid-2018 taken into account. Although other financial comparisons are worth considering, such as EBITDA margin.

Despite Cemex’s relatively high net debt compared to its peers it has been cutting its debt the fastest, at 8% to US$10.4bn in 2018. Its current plan is to reach an ‘investment-grade’ balance sheet by 2020. LafargeHolcim and HeidelbergCement are in ‘cuts’ mode leading to all sorts of speculation about where they might sell next. The wilder rumours in the press include preparations by LafargeHolcim to sell its entire operation in the Middle East and Africa. Similar tales about a sale in the Philippines are more credible but remain unconfirmed. HeidelbergCement is keeping its cards closer to its chest but poor performing territories that might be up for sale include some of its Italian plants and parts of Africa.

Of the larger producers without a European presence, Ultratech Cement has been negatively effected by energy costs during the nine months to the end of 2018 with its income and EBITDA down. Dangote Cement’s performance in 2018 was driven by sales at home in Nigeria although earnings elsewhere continued to grow.

With all of this in mind the scene appears set for a breakout by a major Chinese producer to buy a big bolt-on acquisition or expansion by regional or national players along the lines of that seen by Semen Indonesia or UltraTech Cement. Taiwan Cement has been ahead here with its purchase of a 40% stake in Turkey’s Oyak Cement but what we’re really waiting for is a majority position within a country or territory. At which point CNBM and the like will have earned its place in the 2019 version of this article. Perhaps the age of truly multinational cement producer is coming to an end as regional players become more prominent.

China: China Resources Cement’s turnover rose by 29.5% year-on-year to US$4.94bn in 2018 from US$3.82bn in 2017. Its profit jumped to US$1.02bn from US$0.46bn. Its cement sales volumes grew by 9% to 82.6Mt from 75.9Mt. Cement sales volumes grew in all regions except for Hainan and Yunnan, where they declined slightly. Its concrete sales volumes increased by 5.7% to 14.2Mm³ from 13.5Mm³. No reason for its growth in 2018 was given but the producer’s average sales price of cement grew by 25%.

The cement producer is upgrading 106 cement bagging machines in the reporting year as part of its ‘digital’ cement-bagging project. It completed the construction of three sets of wet-process desulphurisation systems and 11 sets of composite desulphurisation systems. It launched co-processing projects in Changjiang County in Hainan, Tianyang County in Guangxi, Midu County in Yunnan and Fengqing County in Yunna.

China: China Resources Cement (CRC) says that its profit will rise ‘significantly’ in 2018. It has attributed this to a 29% rise year-on-year in the average price of cement in the first 11 months of 2018.

HeidelbergCement is set to release its third quarter financial results later this week. In the meantime what can the results from the other major cement producers tell us?

Graph 1: Revenue from major cement producers, Q1 -3 2018. Source: Company reports.

The biggest of the big beasts, China National Building Material (CNBM), released its third quarter update last week. As usual for a major Chinese producer it was the expected story of continuing double-digit growth. Operating income up, profit up and little other information besides.

CNBM’s half-year report back in August 2018 had more information, revealing that cement production volume fell by 5% year-on-year to 143Mt in the first half of 2018 from 150Mt in the same period in 2017. This was pinned on ‘flat’ demand, increased pressure on environmental protection and rising costs of fuel and raw materials. As we mentioned at the time the state-owned company is attempting to cope with the aftermath of China’s great construction boom. National Bureau of Statistics (NBS) data shows that local cement sales dropped by 8% year-on-year to 158Mt in the first nine months of 2018. CNBM’s cement sales are likely to have dropped also so far in 2018 but continuing industry consolidation and/or the merger with Sinoma may save them. With this in mind note the lack of sales volumes figures from CNBM and Anhui Conch in Graph 2 below.

Graph 2: Cement sales volumes by major cement producers, Q1 -3 2018. Source: Company reports.

Of the other larger Chinese producers, Anhui Conch’s third quarter report was similarly sparse, sticking to the facts (revenue and profit up) and discussing in more detail a recent large-scale sale and purchase agreement with Jiangsu Conch Building Materials with a value of up to around US$230m. China Resources Cement is typically more verbose in its results releases. Its turnover and profits are also up so far in 2018 but it actually explained that cement and clinker prices had risen by 32%.

Outside of China, LafargeHolcim’s results were mixed in a direct year-on-year comparison but more favourable on a like-for-like basis. Net sales and cement sales volumes are growing slowly but recurring earnings before interest, taxation, depreciation and amortisation (EBITDA) fell very slightly. Growth in Europe and North America was countered by issues in Asia Pacific, Latin America and Middle East Africa. Chief executive Jan Jenisch was more optimistic than at the same point in 2017 with no talk of ‘lacking potential’ and more emphasis on ‘positive momentum.’

As for the others, both Cemex and UltraTech Cement are looking good so far. Growth in Mexico and the US has bolstered Cemex’s performance giving, it a 7% year-on-year boost to US$10.9bn in the first nine months of 2018. Cement sales volumes grew more slowly at 3%, although operating EBITDA remained flat. Part of this was down to poorer markets south of Mexico, notably in Colombia. UltraTech Cement is still looking good after its acquisition of Jaiprakash Associates’ plants in 2017 but earnings and profits have started to decline. The Indian market leader has blamed this on mounting energy and logistics costs coupled with local currency depreciation effects.

So, in summary, generally good news from the big producers, although issues are present in certain markets, notably South America. HeidelbergCement has already set the scene for its third quarter results with a warning that its earnings are down due to poor weather in the US and rising energy costs. Sales volumes and revenue are said to be ‘within expectations.’ Its Indian subsidiary, HeidelbergCement India, reported storming figures for its half-year to the end of September 2018 with double-digit growth across sales, sales volumes and earnings. Less reassuringly, its larger Indonesian subsidiary reported falling sales for the first nine months of 2018. All eyes will be on HeidelbergCement later in the week to see how this plays out.

China: China Resources Cement plans to divest three companies it owns in Shanxi province. It intends to dispose of its majority stake and shareholder loans in Shanxi China Resources Fulong Cement, China Resources Cement (Changzhi) and China Resources Concrete (Lucheng). The subsidiaries will be sold in a public tender conducted through the Shanghai United Assets and Equity Exchange.

Shanxi China Resources Fulong Cement is based in Lvliang City and it operates a 4Mt/yr plant with two integrated production lines and four grinding lines. China Resources Cement (Changzhi) is based in Changzhi City and it operates a 2Mt/yr plant with one integrated line and two grinding lines. China Resources Concrete (Lucheng) operates a concrete batching plant.

China: Asia Cement (China) said that its profit attributable to owners for the six months that ended on 30 June 2018 surged by a factor of 10.7 to reach US$139.3m compared to the same period of 2017. Revenue amounted to US$718.8m, an increase of 47% from a year earlier.

Meanwhile, China Resources Cement (CRC) announced that its net profit for the first six months of 2018 was US$2.0bn, a rise of 145.5% year-on-year. CRC’s turnover amounted to US$2.36bn, an increase of 40.4% from a year earlier.

The Chinese government has once again reiterated that it will continue to strictly prohibit cement companies from adding new capacity, despite improving profits. Years of efforts to cut excess capacity in the sector have helped to improve the industry's profits, but signs are emerging that some factories are increasing new capacity, according to Ministry of Industry and Information Technology, which released a joint statement with the state economic planning agency. It said that expansion projects to produce more cement, won't be approved. In addition, factories' plans to replace out-dated capacity with new capacity must comply with government rules.

Germany/China: Siemens has signed 10 agreements with Chinese companies, including China Resources Cement, to support the Belt and Road Initiative (BRI). Other companies it has struck deals with include China Gezhouba Group Corporation International Engineering, Guangdong Yuedian Group, China National Chemical Engineering Group, China Railway Construction and China Civil Engineering Construction.

"As a long-term and well-established partner of China and its industries, we support the call of the Belt and Road Initiative and take another solid step forward on a larger scale and a wider scope", said Joe Kaeser, President and chief executive officer (CEO) of Siemens, witnessing the signing taking place during the BRI Summit in Beijing. He added that the BRI was a ‘wise and powerful’ for force for accelerating infrastructure development already in participating countries.

China: China Resources Cement has started a production line at a subsidiary in Hepu County in the Guangxi Zhuang Autonomous Region. The new line has a clinker production capacity of 1.6Mt/yr and a cement production capacity of 2Mt/yr. At present the company has a clinker and cement production capacity of 26.6Mt/yr and 33.2Mt/yr respectively in the region.

China: Huang Ting has been appointed as the chief financial officer (CFO) of China Resources Cement. He succeeds Lau Chung Kwok Robert who departed from the post on 20 October 2017. Lau will remain as an executive director of the company.

Huang, aged 48 years, joined the group in July 2003 and has held various management positions with the company, including financial controller since May 2012, general manager of the finance department in 2011 and 2012 and Deputy General Manager (Guangdong) from 2008 to 2011. He graduated from Xiamen University with a bachelors degree in economics in 1992.