Charts of the Day: China’s Cement Sector Firms Up Amid Consolidation Drive

Like many infrastructure-related industries in China, the cement sector boomed during China’s economic buildup of the late 20th and early 21st centuries, only to suffer from major overcapacity as the economy started to slow in recent years.

In a bid to rationalize the sector, Beijing has encouraged the elimination of older, outdated production equipment to pare back capacity, even as newer more modern equipment gets added. The latest efforts in that campaign were announced this week, in the form of a new policy being crafted by the Ministry of Industry and Information Technology (MIIT), the sector’s regulator.

The proposed new rules were disclosed this week on the China Cement Association’s website and apply to installation of new capacity for making clinker, one of the main ingredients in cement-making.

Under the new rules, for every ton of new capacity built in areas classified as environmentally sensitive, two tons of old capacity must be retired — up from 1.5 tons of old capacity in the current policy. In non-environmentally sensitive areas, 1.5 tons of old capacity must be retired for everyone ton of new capacity, up from a previous 1.25 tons.

Zhao Hui of the MIIT’s building materials section said the stronger emphasis on retiring outdated capacity should ensure that more older equipment will get permanently removed. As capacity has been removed, cement prices have firmed over the last few years and reached multi-year highs in 2019. With that improvement, China’s cement sector posted revenue in excess of 1 trillion yuan ($148 billion) for the first time last year, up 12.5% from 2018. Profits for the year rose 19.6% to an all-time high of 186.7 billion yuan.

The sector has cooled slightly this year amid slowing demand during the pandemic. Cement prices averaged 404.4 yuan per ton in the first seven months of 2020, down 2.4% from the same period a year earlier. The following charts track China’s cement output and prices over the last five years during the industry’s restructuring.

Contact reporter Yang Ge (geyang@caixin.com)

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