Displaying items by tag: National Bureau of Statistics of China

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.

The 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.

China 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.

The 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.

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The publication of CNBM’s financial results presents a good opportunity to take stock of the Chinese cement industry in the first half of 2019. Looking at the big picture first, cement sales rose by 5% year-on-year to 1.03Bnt in the first half of 2019 from 0.98Bnt in the same period in 2018. Graph 1 below shows the sales over the last five years since 2014. Generally, sales are decreasing each year but there has been some variation in the half-year periods.

Graph 1: Cement sales in China, 2014 – 2019. Source: National Bureau of Statistics of China.

As the China Cement Association (CCA) pointed out in its summary for the first half of 2019, the cement industry ‘swelled in volume and price’ as industry efficiency grew but that the growth rate dropped ‘significantly’ compared in 2018. By region, as Graph 2 shows, variation can be seen between the south-east of the country where growth was slow or even fell compared to stronger performance elsewhere. Cement production increased by above 20% in Jilin, Shanxi, Shandong, Tibet and Heilongjiang and by over 10% in Hebei, Gansu, Tianjin, and Liaoning. However, it fell in Hainan, Beijing, Qinghai, Guizhou, Guangxi, Hunan, Guangdong and Ningxia. Most of these changes were attributed to either rising or falling demand for cement, except for Jilin where reduced imports from neighbouring provinces pushed up its demand. In most of these latter regions it attribute the decline to falling demand for cement.

Graph 2: Cement production growth by province in first half of 2019. Source: China Cement Association.

Other points of note from the CCA include the surge in imports to China. Imports of cement and clinker rose by 149% year-on-year to 8.97Mt in the five months from January to May 2019. Vietnam supplied 68% of this followed by 11% from Thailand. On the production side, 10 new production lines with a total capacity of 15.5Mt/yr were commissioned in the period. These were fairly scattered across nine provinces, in Shanxi, Anhui, Hubei, Fujian, Guangxi, Hunan, Guizhou, Gansu and Yunnan respectively.

Sales and profits were supported by growing demand and prices on the corporate side. CNBM’s operating income for its cement businesses grew by 16% to US$8.14bn from US$7.04bn. Its adjusted profit increased by 40% to US$2.76bn from US$1.98bn. Anhui Conch’s sales rose by 17.9% to US$2.15bn from US$2.11bn. It blamed poorer profits in the south of the country on adverse weather leading to weakened demand.

The weaker sales in the south could be seen in China Resources Cement’s (CRC) results with its turnover down by 6% to US$2.22bn from US$2.36bn. Likewise, its earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 8.5% to US$820m from US$896m. The majority of its cement plants are based in Guangxi, Guangdong and Fujian. Jidong Cement was also reported as having received US$30m in subsidies from the government during the first half of 2019 in relation to its ‘daily activities.’

As is usual for these kinds of roundups the dynamic in China is between government industrial policies, like peak shifting and pollution mitigation, and local demand and price trends. One of the latest spins on peak shifting, for example, is a rating system that is being considered to decide which companies should be subject to production limits and for how long. General cement sales are slowly falling each year but the rise of imports into the word’s biggest cement producing nation (!) mark an interesting trend. Also, it may not be connected, but lots of those provinces with falling demand so far in 2019 are those on the south coast facing the heavy clinker exporting nations of South-East Asia. Given the decisiveness with which the Chinese government dispensed with imports of waste materials under its National Sword initiative since 2017, those countries importing cement to China should beware. It could change very quickly. The Chinese cement market is never dull.

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.

Check out this graph of Chinese cement prices from September 2015. An author at Business Insider attributes it to Larry Hu, the Chief China Economist for Macquarie. It pretty much sums up the mood analysts have at the moment regarding the Chinese cement industry.

Figure 1: China cement prices, 2012 – 2015. Source: CEIC, Bloomberg, Macquarie Research September 2015.

The recent announcement by the Assets Supervision and Administration Commission regarding the merger of China National Building Materials Group Corporation (CNBM) and China National Materials Group Corporation (Sinoma) comes hot on the heels of a series of poor half-year financial returns from China’s major cement producers. Attempts to tackle overcapacity in its local cement industry have been underway for a few years now. Actions taken include demolishing outmoded capacity, merging companies and expanding overseas. However as the construction markets have cooled in the country the scope of what the cement industry is facing has become clear, as revenues and profits have tumbled.

Now that the first half cement sales volume data has become available from the National Bureau of Statistics of China (NBSC) the response of the cement industry to its predicament has emerged. As can be seen in Figure 2 there has been a rough trend of sales decline throughout 2014 and 2015. The first half of 2016 has started to buck this trend as sales volumes have risen year-on-year for both quarters.

Figure 2 – Chinese cement production by quarter, 2014 – 2016. Source: National Bureau of Statistics of China.

Sales revenues have dropped for most of the major companies that have publicly released their results for the first half of the year. The exception is Taiwan Cement, which makes a large proportion of its sales revenue outside of China (People’s Republic of China). Its sales revenue in China barely rose year-on-year in the first half of 2016. However, the cement sales volumes for all these companies have started to show what is happening. They have risen for most of the producers examined. Essentially, each of these producers is producing more cement but making less money. As Digital Cement puts it, the industry is in a 'low-profit position.' Increased market competition and endemic industry overcapacity are causing this.

Mergers and acquisitions have been the big story for the European multinational producers following the economic crash in 2007. Returns from low growth markets have been substituted for efficiencies of scale, knowledge sharing and greater international reach. Lafarge and Holcim merged in 2015 and HeidelbergCement is due to complete its acquisition of Italcementi later this year. However, as LafargeHolcim's disappointing financial returns and its continued slew of divestments show so far, the merger has not worked as well as may have been hoped… yet.

Whether China's version of this works with its large state owned enterprises is uncertain. Mergers are meant to cut out inefficiencies through economies of scale. Yet the question remains: can even larger Chinese cement producers do this when they are state controlled and harangued by pressures outside the normal market, particularly when local regions try to preserve their industries. The last such big deal, between Anhui Conch and China Resources Cement, fell apart in July 2016. The plans for CNBM and Sinoma may fare better but if the price of cement keeps falling then the market may have other ideas.

For more information see the China country report in the September 2016 issue of Global Cement Magazine

Even the Chinese premier doesn't trust his country's GDP figures. Li Keqiang reportedly told a US ambassador this in 2007. He described Chinese GDP figures as 'man-made' and unreliable. Wikileaks then made the diplomatic report public a few years later. This anecdote has been much reported this week due to the latest gloomy economic figures from China. Its economy officially grew by 6.9% in 2015, its slowest rate in 25 years.

So what can a jittery world trust? Keqiang was reported to focus on three data samples to compensate for an unreliable GDP: electricity consumption, rail cargo volume and bank lending. Global Cement Magazine suggests that he should have followed one more: cement. What can cement tell us about the Chinese economy in recent years?

Chinese cement production fell by 4.9% to 2.35Bt/yr in 2015 according to newly published figures by the National Bureau of Statistics of China (NBSC). This is significant. Firstly, whether it is a true reflection of actual production or not, it is an admission by a Chinese state body that cement production is declining. Secondly, it signals the end of the rapid growth of the country's heavy industries through the 1990s and 2000s.

Figure 1 – Chinese cement production by quarter, 2014 – 2015

Figure 1 shows Chinese cement production by quarter in 2014 and 2015 using NBSC data. Two years are insufficient to pick out any major trends other than seasonal trends throughout each year. However, remove the slow winter months in the first quarter of each year and a steady decrease in production throughout 2014 and 2015 is apparent.

Figure 2 – Chinese cement production by year, 2005 – 2015

Figure 2 offers the context that Figure 1 lacked by comparing cement production from 2005 to 2015. Notable trends to point out are a slow down in growth in 2008, around the time of the global financial crash. Then production peaked in 2014 before falling in 2015. This data comes from the United States Geological Survey and then latterly the NBSC.

Figure 3 – Chinese cement production by year and GDP/capita, 2005 – 2015

Figure 3 shows annual growth in cement production against growth in GDP. The similarity of each line here, or the rate of growth, and where they diverge is what is interesting here. Up until the late 2000s the trend is similar until GDP/capita starts to grow faster than cement production. At this point either the Chinese economy has started to acknowledge that it can build all the infrastructure and housing it needs or perhaps the slowing growth in cement production has started to point to slowing GDP/capita growth.

2015 could be a blip if growth resumes in 2016. Yet the other heavy industry metrics suggest otherwise. Electric power and steel production also fell for the first time in 2015. Coal production dropped for the second year in a row. The Chinese housing market started to slow noticeably in 2014, cement production followed by slowing down and now the country's GDP growth has also slowed. Alongside this the industry's capacity reduction programme officially started in late 2013. Cement consumption per capita for China has long suggested that Chinese growth was due to slow. It is reassuring to finally see the official production figures reflect this. The real question though is what happens next.