Cement Industry may reach four consensuses in 2018


Updated Tue, 24 Apr 2018 10:29:28 GMT

  According to the statistics that National Bureau of Statistics reported recently, our cement industry total profit had reached 87.7 billion in 2017, which had increased by 94.41% compared with last year, ranked second in the history. It’s believed by many in the industry that cement price kept high-priced in the whole of last year. The industry comes roaring back due to the overall situation that is not short off-season, the season more prosperous.


  After cement industry tasted benefits from the high cement price, what actions will they taken through reviewing the past and looking ahead to new opportunities in 2018? From my view, Cement industry may reach new consensuses from the following aspects in 2018 based on the current situation of excess capacity and requirements of stabilize cement market.

  The living space for cement grinding enterprises is shrinking against the background of merger and reorganization.

  Last June, I visited Jiangxi cement market and learned from some cement grinding enterprises that local clinker enterprises were squeezing their living space and lead to the survival difficulties. Actually not only in Jiangxi, this situation has been gradually emerged in recent two years since the domestic cement industry is entering the era of clinker control progressively from 2016. It is considered by some insiders that clinker enterprises suppress cement grinding enterprises will go into normality. The living space of those cement grinding enterprises without clinker will be further compressed and even step down from the stage of history.

  What is the era of clinker control? Some industry experts say that is controlling clinker’s prices, sales volume and sales terminal (sell to whom). The main reason is Off-peak production compressing clinker production phased and reducing inventory pressures. The maximum impact that off-peak production made is the reduced production of clinker. For example, clinker inventory level in north is about 10-20% lower than previous years in April, 2017. Clinker volume in the south market is cut down periodically because of off-peak production in north that reduce the pressures of the south market,in addition, the periods of spring festival, the heat of summer and rainy season join into the off-peak production.

  Another reason is large cement enterprises from various regions increase self-use proportion of clinker, reduce external sales gradually and improve the power of control to clinker supply by high concentration. At present, clinker production volume of the national top 10 enterprises account for 60% of the total output of the country. Their power of control to clinker is far surpass to cement. There is no doubt that proportion of external sales of clinker will less along with the gradually formed consensuses. This year, prices of clinker material and cement hang upside down (which means clinker prices higher that cement) is the most effective proof, especially for enterprises in East China.

  Besides, big cement enterprises like China Anhui Conch Group Co., Ltd push ahead with increase their own grinding station capacity, which will, no doubt, decrease the external sales of clinker. The measure of cancel 32.5 level cement will make more survival difficult for grinding stations. It will greatly reduce the flexibility of production, increase the cost of production and squeeze profit space.

 Enterprises are expected to strengthen cooperation based on the competition.

  In light of the problem of competition among enterprises, I think competition among enterprises will be more orderly in the future. In previous years, domestic cement industry was in the phase of explosive growth, cement was in demand in domestic, low concentration, and competition among enterprises were fierce. However, since cement industry met their waterloo from 2015, the fierce competition relationship had started changed. Owing to the slumping demand, the problem of excess capacity got worse. Enterprises across the nation initiatively seek to new competition relationship, there came out orderly competition. The establishment of orderly competition relationship drove cement prices up in 2016.

  Those enterprises who have tasted sweetness in 2017 were more inclined to set up orderly competition relationship, therefore, the industry hold several relevant meetings. For example, the 6th “Shanxi-hebei-shandong-henan C12+4” meeting had been held in August, 2017. At the conference, cement industry enterprises reached consensuses in continuously deepening reform in those four provinces’ regional cement industry, further promoting to cut production capacity and increasing the benefits. In the September, China Cement Association issued Guide of Self-regulatory for China Cement Industry Market Price Association (on trial) and Program for Establishing Cement Industry Self-regulatory and Credit System (2017-2020), thus the relationship between industry competition and cooperation is further clear.

  For keeping this run going, Hebei Building Material Association has reached an agreement of The Self-regulatory Convention for Cement Industry Off-peak Production in the beginning of February, 2018.

 Establishing clinker trading company.

  As we talk about local enterprises establish clinker trading company, we have to mention that the establishment of Zibo Union Cement Business Management Co., Ltd, whom was led by Zibo People’s Government, co-founded by Zibo Public Asset Management Cooperation and seven main cement companies in the region and the adjacent area. In its early days, this measure was considered as an experimental field which can solve the development problems of current cement industry and it will provide precious experiment for healthy development of countrywide cement industry.

  Li Qingwen, the general manager of Zibo Union Cement Business Management Co., Ltd revealed in relevant reports in that August that the company has been operating well, several tasks have achieved remarkable results, relevant companies eliminated price dumping altogether through controlling effective supply, reasonable distribution of the proportion of capacity and sales, the benefits of enterprises picked up greatly and provide good assurance for special fund for cut the capacity.

  In the end of that August, Liaoning Yunding Cement Group Co., Ltd which is similar to Zibo Union Cement Business Management Co., Ltd established. Six of its shareholders’ clinker combined capacity in Liaoning Province reached 23.46 million tons, which takes nearly 50% of the total clinker capacity of the whole Liaoning Province.

  The controversy of the way that local enterprises establish union management company has never stopped in the industry. Some people consider that it is still too early to make a judgment to that way. Both of those two enterprises were found in the period of cement price rising, which means everybody can earns moneys. So, it is still unknown whether this kind of way can continue in the situation of lower overall demand.

  Moreover, there has been talk that they will establish clinker trading company from some parts of the country, so this way may apply in wider range in the future.

  Continue to implement the policy of“off-peak production”.

  To implement 2017 cement industry situation step into the new heights of off-peak production is an important issue in the meeting. All the representatives have reached the consensus of keeping on response positively to “off-peak production” policy. Nationwide off-peak production was in its third year in 2017, comparing to previous years, it’s more powerful and wider. Many provinces developed summer off-peak policy, duration of off-peak in some provinces in northern east even reach half a year.

  Along with off-peak frequency’s improvement, production time of open cement kiln has been compressed, and that unbalanced supply and demand. It increases cement price to some extent. To the off-peak situation in 2018, I think it will continue or even enhance the off-peak degree in 2017. On the one hand, the experiments over last two years make profits increased greatly to those enterprises who have participated in off-peak production, enterprises’ enthusiasm is aroused. On the other hand, the requirements of national environmental protection are strengthened gradually, which provides a condition for cement off-peak production.

  Taken together, in the context of domestic cement excess capacity, the trend that mentioned above may gain more acceptances in cement industry because of the demand of stabilize the industry profits.