Displaying items by tag: Overcapacity

Sectoral adjustment continued for the cement industry in China in 2024. Now that the financial results from many of the larger China-based cement producers are out it gives Global Cement Weekly a chance to review the world’s biggest cement market. The decline in national output of cement accelerated in 2024 and the results showed this. CNBM summed up the situation as follows: “In 2024, affected by the reduction of real estate investment and the slowdown of infrastructure projects, the cement industry in China was caught in a situation of insufficient demand and aggravated overcapacity.” Output dropped by just under 10% year-on-year to 1.83Bnt in 2024 according to data from the National Bureau of Statistics of China (NBS). This is the fourth consecutive annual decline and the lowest figure the sector has experienced since around 2010.

Graph 1: Cement output in China, 2018 to 2024. Source: National Bureau of Statistics of China.

The China Cement Association’s (CCA) assessment concurred with CNBM. Although it detected a slowing in the decline in the second half of 2024, especially in the fourth quarter. It noted that the country has a production capacity of 1.81Bnt/yr and an estimated clinker utilisation rate of 53% in 2024. Note the large apparent difference this may suggest between the NBS and CCA figures. Data from the NBS for the first quarter of 2025 has shown a slowing of the decline. Output was 331Mt, a fall of just 1.7% year-on-year from the same period in 2023. The CCA’s prediction for 2025 is that cement demand will fall by 5% as the real estate market continues to deflate. However, it expects government-led capacity reduction schemes to start making progress.

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

Graph 3: Sales volumes of cement and clinker from selected Chinese cement producers. Source: Company financial reports.

CNBM’s sales revenue fell by 14% to US$24.8bn in 2024. Sales of its Basic Building Materials segment fell by 23% to US$12.5bn. This was blamed on falling volumes and prices of cement and other heavy building materials. Sales from the group’s two other segments - New Materials and Engineering Technology Services - rose modestly but this wasn’t enough to hold up total group sales. Operating profit from the Basic Building Materials segment decreased by 45% to US$544m. It was a similar picture at Anhui Conch with sales revenue and net profit down by 36% to US$12.4bn and by 25% to US$1.01bn respectively. Notably, CNBM’s sales volumes of cement decreased by 21% to 245Mt in 2024 compared to a decrease of 6.5% to 268Mt by Anhui Conch. This made Anhui Conch the world’s biggest cement company by sales volumes in 2024.

Tangshan Jidong Cement and China Resources Building Materials Technology (CRBMT) both reported a similar situation. Revenue was down and a net loss was reported by the former. Both revenue and net profit were down for the latter. CRBMT said that its cement capacity utilisation rate was 69% in 2024, down from 71% in 2023. This appears to be significantly higher than the national rate mentioned above by the CCA but the company’s regional distribution may be at play here.

Following from recent years, Huaxin Cement bucked the general market trend and its revenue rose modestly to US$4.7bn in 2024. Its net profit still fell by 12.5% to US$330m. Its overseas businesses made the difference. It reported an increase of 37% to 16.2Mt in overseas cement sales with its non-China cement production capacity rising by 8% to 22.5Mt/yr. Milestones include various new or upgraded plant projects in Sub-Saharan Africa capped off by its announcement at the end of 2024 that it was preparing to buy Lafarge Africa. Other cement companies were also keen to promote overseas activity. CNBM said that the first signing of overseas merger and acquisition was achieved in 2024. This is likely to be the purchase of the Djebel El Oust cement plant in Tunisia from Votorantim Cimentos that was completed in late March 2025. Tangshan Jidong Cement acquired the remaining 40% share in South Africa-based Mamba Cement in April 2024.

All of this leaves the cement sector in China still waiting for the market to stabilise. US tariffs seem unlikely to have an effect in any meaningful way unless the general economy is altered. The declining real estate sector and cement production overcapacity are the main drivers at the national level. The CCA expects the real estate market to continue to fall in 2025 although it hopes that government remedy measures will start to show an effect. It is more optimistic about capacity reduction plans. One route towards this is through merger and acquisition activity. In a recent response to investors about industry integration, Huaxin Cement speculated that the sector might consolidate down to 30 companies from around 300 at present. There is clearly still a way to go.

Vietnam: The Ministry of Construction has reported a cement surplus to the Prime Minister, blaming a supply-demand imbalance. The country has 92 cement production lines with a capacity of over 122Mt/yr, according to the Việt Nam News newspaper. However, cement and clinker consumption was 95Mt in 2024, with 65Mt used domestically and 30Mt exported.

Planning regulations governing cement plants were relaxed in 2017. Subsequently, local authorities approved 13 new units that added 35Mt/yr in capacity. The Ministry of Construction proposed a national building materials strategy capping total cement production at 125Mt/yr by 2025 and 150Mt/yr by 2030. The ministry has also urged provincial governments to limit new cement projects to prevent excessive supply. It has proposed tightening the planning laws on building new cement plants.

The Vietnam National Cement Association (VNCA) has highlighted weak market demand and production constraints as major challenges to the sector. It has lobbied the government to promote housing, infrastructure and road projects to grow the cement market.

Indonesia: Indonesian Cement Association (ASI) chair Lilik Unggul Raharjo has called for a more ‘robust’ approach to production overcapacity in the cement sector. In a statement by the ASI he lobbied for the government to strengthen its ban on the construction of new plants, according to the Jakarta Post newspaper and Kontan. At present the moratorium applies to obtaining licences via the country’s integrated electronic licensing system (OSS). Lilik also requested a better legal framework to protect the industry.

The government says it is using the block on investment in new cement plants to support the local sector. Restrictions are in place for regions such as Sumatra, Java, Kalimantan and Sulawesi. However, the government is ‘open’ to new plants being built in areas that have no existing units including Papua and Maluku.

ASI data shows that cement sales reached 77Mt in 2024 with a capacity utilisation rate of 65%. Domestic sales fell by just under 1% year-on-year to 65Mt in 2024. Exports grew by 10% to 12Mt. The ASI expects domestic sales of cement to increase by up to 2% in 2025.

Vietnam: The general director of Vietnam Cement Industry Corporation (VICEM), Nguyen Thanh Tung, says that Vietnam will suffer continued cement overcapacity amid high production costs in 2025. Full-year production is forecast at 125Mt, 96% greater than an expected domestic demand of 63.5Mt. Việt Nam News has reported that Vietnam’s cement exports face an on-going investigation in Taiwan, and are already subject to anti-dumping duties in the Philippines.

VICEM aims to raise its domestic clinker sales volumes by 8% year-on-year to 18Mt, in order to generate sales of US$1.16bn. To this end, Tung urged the government to adopt cement reinforcement in roadbuilding, as well as lifting the export tax on cement.

Global: The World Cement Association (WCA) projects a 22% decline in global cement demand by 2050. Price increases are expected to continue in European and North American markets, while significant market restructuring is already underway to address overcapacity in China and Japan. Multinational companies are scaling back cement business and focusing instead on North America, while cement production in Europe continues to decline due to strict CO₂ regulations and capacity reductions.

India's cement production has surpassed 200Mt/yr, with domestic firms strengthening their position as multinationals exit the market. Chinese producers are expanding their presence, particularly in Africa and Southeast Asia.

WCA president Wei Rushan said “To remain both profitable and environmentally responsible, the cement industry must aim to reduce capacity by 50%, from 4.7Bnt/yr to 2.3Bnt/yr within the next decade. This requires focusing on modern, sustainable production units.”

Oman: Raysut Cement says that production overcapacity in neighbouring countries has led to excess supply in the local market. This in turn has placed “pressure” on cement prices. The company added that exports to the Maldives, Yemen and east Africa had also slowed due to regional political instability, negative currency exchange effects and higher competition. The cement producer’s revenue fell slightly year-on-year from US$128m in the first nine months of 2023 to US$127m in the same period in 2024. However, its net loss grew from US$8.71m to US$14.6m.

Nepal: Exports of cement to India via the Kakarvitta road border crossing in Jhapa totalled 50,000t in the 2024 financial year, which ended on 15 July 2024. KhabarHub News has reported that shipments had a combined value of US$3.81m. The Kakarvitta crossing had not previously served to convey major despatches of cement between the two countries. The cement industry in Jhapa is 50% dependent on export markets for its demand. Eight plants operate in the district, of which three currently sit idle due to 40% local oversupply.

The National Development and Reform Commission and other government bodies in China released plans this week to cap clinker production capacity at 1.8Bnt/yr by the end of 2025. Energy efficiency of existing capacity will be used as the driver to determine which production lines can remain open. 30% of capacity will be required to be above the benchmark energy efficiency level. Plants below this line will be obliged to upgrade or face elimination.

Points of interest from the longer release include detail on how the authorities intend to promote energy efficiency. Installing improved production line equipment is as might be expected. However, there is also a drive towards low-carbon fuel substitution such as an increased thermal substitution rate (TSR) through the use of alternative fuels (AF), promotion of renewable energy sources and, interestingly, no new cement plants will be able to add captive coal power plants. The government is targeting a TSR of 10% by the end of 2025 with 30% of lines using AF in some form or another. A plan to reduce the clinker factor in cement is also being pushed through for the increased use of blast furnace slag, fly ash, carbide slag, manganese slag and other supplementary cementitious materials. This last point might have big implications for the ferrous slag export market but that’s a story for another day.

Working out how much these new measures will affect the cement sector in China in the short term is not straightforward since it’s unclear what the country’s actual production capacity is and how much of it is actually active. Data from the National Bureau of Statistics of China showed that cement output was 2.02Bnt in 2023. The China Cement Association (CCA) estimated that the capacity utilisation rate was 59% in 2023. So, if the sector were using all of its integrated cement plants flat out, then one might crudely suppose that the national production capacity might be around 3.5Bnt/yr. This guess does not take into account the prevalence of blended cements and a whole host of other factors so should be treated with caution. Given that cement output fell by 5% year-on-year in 2023, output could be just over 1.8Bnt in 2025 if the rate of decline holds. Research by Reuters in April 2024, suggested that the capacity utilisation rate hit 50% in that month, suggesting that the sector could meet the target in 2024 if it’s a particularly bad year. So, provided the production cap is enacted along the same lines of peak-shifting, where plants are temporarily shut for periods, then the target looks well within reach.

As reported in April 2024, the Chinese cement sector has faced rationalisation in recent years as the real estate market collapsed. Output peaked in 2020 and then fell subsequently. Most of the big producers endured falling sales volumes, revenue and profit in 2022, although some managed to resist the continuing decline in 2023. One coping mechanism has been to focus on overseas markets as proposed by the government’s Belt and Road initiative. Huaxin Cement has been a particular proponent of this strategy. The CCA says that China-based companies have invested in and built 43 clinker production lines in 21 countries with a cement production capacity of 81Mt/yr. Another 43Mt/yr of capacity is currently being built outside of China with yet another 25Mt/yr of capacity proposed for construction.

It is interesting, then, to note that the CCA issued an official warning this week to its members to invest ‘cautiously’ in Uzbekistan. The association said in a statement that at the end of April 2024 the country had 46 integrated production lines with a cement production capacity of 38Mt/yr. This is double the country’s demand for cement. Half of this production capacity is managed by China-based companies. It added that the utilisation rate was currently 50%, that the price had dropped by about 40% since 2020 and that competition was ‘fierce.’ Incredibly, another 7Mt/yr of capacity is expected to be added in 2024. The CCA has advised Chinese companies to consider the state of the Uzbek cement market before making any more investments.

The two news stories we have explored this week cover two sides of the same issue: Chinese cement overcapacity. The local market is finally slowing down after a period of phenomenal growth and the big question is what is the actual market demand now that all the big stuff has already been built. The government gives every impression it is using the decline to meet its sustainability goals. Like institutions in many other places it has set itself targets that it seems likely to meet. The flipside of overcapacity at home is investment overseas. China-based plant equipment manufacturers have certainly done well out of this situation. Yet in Uzbekistan, at least, it looks like the cement sector in China has also managed to export its overcapacity. This has created the absurd situation where the CCA has implored its members and others to exercise the same self-discipline abroad that the government extols at home. Another way to put this might be that Chinese cement companies are increasingly unable to make money at home… or in Uzbekistan. This then leaves a query over where else enthusiastic Chinese cement investors may be causing market imbalances. One solution might be for the Chinese government to impose a cap on clinker production by its companies outside the mainland. Whatever happens next though, the introduction of a capacity cap in mainland China marks a decisive change to the local cement sector.

Changes are underway in South Asia’s second largest cement sector, with two legal developments that affect the industry set in motion in the past week. At a national level, the Competition Commission of Pakistan recommended that the government require cement producers to include production and expiry dates on the labels of bagged cement. Meanwhile, in Pakistan’s largest province, Punjab, a new law tightened procedures around the establishment and expansion of cement plants. At the same time, the country’s cement producers began to publish their financial results for the first nine months of the 2024 financial year (FY2024).

During the nine-month period up to 31 March 2024, the Pakistani cement industry sold 34.5Mt of cement, up by 3% year-on-year. Producers have responded to the growth with capacity expansions, including the launch of the new 1.3Mt/yr Line 3 of Attock Cement’s Hub cement plant in Balochistan on 17 April 2023. China-based contractor Hefei Cement Research & Design executed the project, including installation of a Loesche LM 56.3+3 CS vertical roller mill, giving the Hub plant a new, expanded capacity of 3Mt/yr.

Pressure has eased on the operating costs of Pakistani cement production, as inflation slowed and the country received a new government in March 2024, following political unrest in 2022 and 2023. Coal prices also settled back to 2019 levels, after prolonged agitation. Pakistan Today News reported the value of future coal supply contracts as US$93/t for June 2024, down by 2% over six months from US$95/t for January 2024.

Nonetheless, cost optimisation remained a ‘strong focus’ in the growth strategy of Fauji Cement, which switched to using local and Afghan coal at its plants during the past nine months. Its reliance on captive power rose to 60% of consumption, thanks to its commissioning of new waste heat recovery and solar power capacity. During the first nine months of FY2024, the company’s year-on-year sales growth of 14% narrowly offset cost growth of 13%, leaving it with net profit growth of 1%.

Looking more closely, the latest sales data from the All Pakistan Cement Manufacturers Association (APCMA) shows a stark divergence within cement producers’ markets. While exports recorded 68% year-on-year growth to 5.1Mt, domestic sales fell, by 4% to 29.4Mt. The association further breaks down Pakistani cement sales data into South Pakistan (Balochistan and Sindh) and North Pakistan (all other regions). Domestic sales dropped most sharply in South Pakistan, by 6% to 5.16Mt. In the North, they dropped by 3% to 24.2Mt. Part of the reason was a high base of comparison, following flooding-related reconstruction work nationally during the 2023 financial year. Meanwhile, the government finished rolling out track-and-trace on all cement despatches during the opening months of the current financial year, and commenced the implementation of axle load requirements for cement trucks. APCMA flagged both policies as potentially disruptive to its members’ domestic deliveries, amid a strong infrastructure project pipeline.

Pakistani producers suffer from overcapacity, but have established themselves as an important force in the global export market. They continue to locate new markets, including the UK in January 2024. Lucky Cement was among leading exporters overall, with a large share of its orders originating from Africa.

On 17 April 2024, the government of Punjab province set up a committee to assess new proposed cement projects, with the ultimate goal of conserving water. Falling water tables are considered a significant economic threat in agricultural Punjab. Besides completing an inspection by the new committee, proposed projects must also secure clearance from six different provincial government departments and the local government. While acknowledging the necessity of the cement industry, the government insisted that it will take legal action against any cement plant that exceeds water allowances.

Pakistan’s cement plants have grown in anticipation of a local market boom. Without this strong core of sales, underutilisation will remain troublesome, especially in North Pakistan where exposure is highest. At the same time, APCMA has given expression to the perceived lack of support affecting production and distribution. For an industry with expansionist aims, new restrictions on its growth and operations can feel like an existential menace.

Bangladesh: Crown Cement (formerly MI Cement Factory) officially commenced production from its Munshiganj grinding plant’s new Unit 6 on 14 January 2024. The Daily Star newspaper has reported that the new unit increases the Munshiganj plant’s capacity by 72% to 5.7Mt/yr. MI Cement Factory previously signed a US$22.8m syndicated loan facility for the expansion with Eastern Bank Limited on 28 May 2023. The producer said that delays with suppliers and currency crises postponed its delivery of the project. It first postponed the expansion – at that time valued at US$54.6m – due to domestic overcapacity amid the Covid-19 outbreak in October 2020.