Displaying items by tag: National Bureau of Statistics

Data is starting to emerge about how the Chinese cement industry has coped with the economic effects of government action regarding the coronavirus. National cement industry output fell by 29% year-on-year to 150Mt in the combined months of January and February 2020. Output then picked up to 149Mt in March 2020, a drop of 17% compared to March 2019. These are massive figures, larger than the annual output of most countries, but they give some idea of what shutting down economies does to demand for cement and concrete.

Graph 1: Year-on-year change in cement output in China, April 2018 - March 2020. Source: National Bureau of Statistics of China. Note that accumulated data is issued for January and February each year so these months show a mean figure.

Graph 1 above gives the general picture of changes in cement output in China over the last couple of years. Growth fell in early 2018 as the government implemented its supply-side reforms, including measures such as industry consolidation and peak shifting. This improved in the second half of the year and throughout 2019. January and February output has been steady for the last few years, possibly due to peak shifting, but this year the trend was massively more pronounced. In March 2020, meanwhile, output fell by 17% compared to a rise of 17% in 2019. On the demand side, reporting from the Chinese Cement Association reveals that national infrastructure investment (excluding electricity) decreased by 19.7% year-on-year in the first quarter of 2020. National real estate development investment fell by 7.7% to US$310bn.

The figures above are for the whole of China whilst the outbreak was centered in Wuhan in Hubei province. The government implemented its toughest public health measures in this city and the surrounding Hubei province, with other regions using social distancing and tracking methods to various degrees. The Chinese Cement Association explains that, once other cities in Hubei province were released from lockdown, construction projects were allowed to resume but that progress was limited due to a lack of workers. Three weeks after measures were relaxed, the average shipping rate for cement producers was only 60% in these outer regions. In Wuhan the situation was more stark with demand for cement at only 20% of expected levels at the time the lockdown ended on 8 April 2020. Data from the Hubei Cement Association reports that on 30 March 2020 only half of Hubei province’s 57 clinker production lines were producing cement. The rest were suspended. To compound the problems here once logistics networks started to reopen imports of cement from other provinces flooded in taking advantage of price differences.

Few if any of the larger domestic producers have released their first quarter financial results for the first quarter of 2020. Huaxin Cement has said that its sales fell by 36% and that this is expected to cause a profit drop of 46% year-on-year to US$100m. Shanshui Cement has said likewise, although it has not released any forecasts. In its annual report for 2019 released in early April 2020, Anhui Conch said that the coronavirus had exerted a ‘short-term negative impact’ on the group’s business due to the slowdown in supply and demand in the construction materials industry. CNBM also acknowledged the situation in its 2019 report saying that it would, ‘impact on economic activity.’ CNBM’s subsidiary BNBM, a gypsum wallboard manufacturer, has released a forecast for the first quarter predicting a 90% drop in net profit due to poor sale volumes.

How this can inform the cement industries of other countries around the world that have enacted restrictions on their populations is unclear. China, as ever, is an exceptional outlier both economically and as a cement producer. Plus, the severity of how a country enacts a lockdown is crucial here. If the early reports above are indicative then half of Hubei’s clinker lines were forced to suspend production, demand for cement fell by 80% at the time the lockdown ended and imports headed in once transport networks were reopened. Issues were also noticed with labour shortages. Forewarned is forearmed as they say. The next point of focus will be how fast the Hubei and Chinese cement industry recovers from this shock. More on this as we have it.

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.

Lots of fascinating information has been emerging in recent weeks about changes in the Chinese cement industry as the larger producers have published their annual financial results. One example is the focus on using alternative fuels to fire up kilns. As explained below, the spotlight on co-processing is state-mandated and this is why the producers are now keen to promote their adherence. Even so, as ever with China, the scale of the change is staggering.

For example, Anhui Conch reported that it had completed 15 waste treatment projects and one sludge treatment project in 2016. In addition it had three projects still undergoing construction at the year-end. The group said that it co-processed 600,000t of domestic waste in its cement kilns in 2016. All of this was achieved by a company that says it only started co-processing municipal waste from its first project in 2010. China Resources Cement’s (CRC) progress was slower but it managed to start a co-processing project at its plant in Binyang County, Guangxi in December 2015 and a sludge project in Nanning City, Guangxi in July 2016. New projects at Tianyang County, Guangxi and Midu County, Yunnan are being built at present, with completion expected by the end of 2017.

Long held rumours about production overcapacity in China came to head in 2015 with the National Bureau of Statistics in China (NBSC) reporting that sales dropped in 2015 following a decade of steady growth. Then the results of most of major producers followed this by falling in 2015. CRC presented a good history of what happened next in the Chinese cement industry in its results report [LINK]. In brief, in 2016 the Chinese government implemented supply-side structural reforms focusing on production efficiency, reiterating attempts to stop new production capacity being built and pushing environmental reforms. Throughout the year various government offices released guidelines to encourage market consolidation, cut obsolete production capacity, increase co-processing rates and decrease the energy needed to produce each tonne of clinker.

Graph 1: Cement sales in China, 2012 – 2016. Source: National Bureau of Statistics in China.

Whether or not any of this has helped the Chinese cement industry to overcome the problems it faced in 2015 is unclear. As Graph 1 shows, Chinese cement sales started to rise again slightly to 2.35Bnt in 2016 from 2.31Bnt in 2015. Sales revenue from some of the major cement producers presents a more varied picture as can be seen in Graph 2. Anhui Conch’s revenue rose by 9.7% year-on-year to US$8.12bn in 2016, China National Building Material Company’s (CNBM) revenue rose by 1% to US$14.8bn and CRC’s revenue fell by 4.2% to US$3.3bn. CRC may have suffered here from its relative business concentration in southeast China. Both Anhui Conch’s and CNBM’s results seemed to look patchy in mid-2016 when they released their half-year reports, but both sales and profits seemed to pick up sharply in the second half of the year.

Graph 2: Sales revenue from selected major Chinese cement producers. Source: Company annual reports.

As the current set of structural reforms kick in within the Chinese cement industry it will be interesting to see what happens next. From plans to cut 10% of local clinker production capacity by 2020 to ambitious environmental aims the sector barely has time to catch its breath. The question is whether the major producers balance sheets are being helped more by a recovering local market or by the reforms. Either way the uptake of alternative fuels is encouraging.