[Commentary] Next, how should the supply-side reform of the cement industry work?

I. Relevant policies

for the supply-side reform of the cement industry In 2016, the General Office of the State Council issued the Guiding Opinions on Promoting the Steady Growth of the Building Materials Industry, Adjusting the Structure and Increasing the Benefits (No.34), which is a programmatic document for the supply-side structural reform of the cement industry. The document puts forward four major measures to reduce excess capacity, namely, strictly prohibiting new capacity, eliminating backward capacity, promoting joint restructuring and implementing peak staggering production. At the same time, it puts forward relevant guidance on accelerating transformation and upgrading, promoting cost reduction and efficiency enhancement. In addition, the supporting policy standards such as peak staggering production, capacity replacement methods, energy consumption and emission standards per unit product have been gradually introduced and improved, which constitute the main policy basis for the structural reform of the supply side of China's cement industry.

Table 1: Main Policies

for Supply-side Reform of Cement Industry Since 2016

Figure 1: 2016-2021 Cement Industry Profit Trend

Data Source: Cement Big Data (https://data.ccement.com/)

II. Since 2022, the contradiction between supply and demand has intensified, and the efficiency of the industry has continued to decline

sharply. In 2022, the apparent consumption of domestic cement has declined sharply compared with the same period last year. In 2023, although the epidemic prevention and control has been liberalized, the demand for cement is still affected by factors such as insufficient start-up of real estate projects, shortage of funds for construction projects, and weak investment in manufacturing industry. Cement demand is expected to continue to decline throughout the year. 2. During the year, cement prices continued to fall, with a year-on-year decline of more than 20% in the first half of the year. Cement and " At present, the cement industry urgently needs to sum up problems and experiences on the basis of the last round of supply-side reform. And further adjust and optimize to stabilize the economic growth of the cement industry, promote the transformation and upgrading of the industry, and achieve high-quality development.

Table 2:2022 ~ 2023 Shrinking industry demand, sharp decline

in efficiency Data source: cement big data (https://data.ccement.

in recent years, Cement enterprises have improved their technological level by means of technological upgrading and capacity replacement, but they have also improved the unit capacity of clinker to a certain extent, resulting in that the actual capacity is generally higher than design capacity (more than 30% of the design capacity is more common), which makes the capacity show the characteristics of "clear reduction and real increase", especially after 2020. The 5000t/d production line can even produce 7000 tons per day. Although the output is compressed during the peak staggering period, the output is enlarged during the non-peak staggering period, which makes the actual capacity utilization rate during the non-peak staggering period decline sharply. If we continue to convert the capacity according to the existing clinker kiln diameter, it is not in line with the actual situation.

Figure 2: The planned production capacity reaches a high level

in 2020-2021 Data source: Cement Big Data (https://data.ccement.

during the 13th Five-Year Plan period. Some low-efficiency production capacity (2000t/d and below, JT kiln, etc.) obtained rebirth opportunities through the sale of capacity replacement indicators, which were once as high as 200 yuan/ton, and the market-oriented elimination mechanism failed, which laid hidden dangers for the future overcapacity problem. The activation of inefficient production capacity reflects that the current domestic standards for eliminating backward production capacity are lagging behind, and it is no longer suitable for the transformation and upgrading of the current cement industry to determine whether it is backward by simple scale or technology.

Thirdly, the policy of peak staggering production is not uniform and arbitrary. The policy

of peak-staggering production has been tried out in the northern region and promoted to the whole country, and finally formed a normalization mechanism, but the degree of implementation and standards vary from region to region, which affects the fair competition among regions. Even in the same province, the rules for the implementation of peak staggering production are not uniform, arbitrary or easy to form local protection. In promoting the construction of a unified national market, the policy of peak staggering production should break down regional barriers and try to achieve fairness and justice.

4. Suggestions

on the supply-side reform of the cement industry in the next step (I) Further increase the efforts to

strictly control new production capacity In the next stage, the efforts to strictly prohibit new production capacity and eliminate backward production capacity should be further strengthened. The existing capacity replacement policy should be further improved, and more constraints should be added from the aspects of energy consumption control, unit carbon emissions, and the proportion of alternative fuels used in new lines, so as to substantially increase the threshold and construction cost of new capacity. New production capacity should not only pursue the scale of production capacity, but also be guided around the goal of double carbon, focusing on the high-quality development of the supply side. In particular, the construction of ultra-large clinker production lines should be carefully evaluated in the light of the future development of the region.

We will further raise the threshold for eliminating backward production capacity and establish a target for eliminating backward production capacity. For small and medium-sized production lines, actively organize regional enterprises to carry out joint reorganization or docking of large and small kilns to reduce production capacity.

At present, precise and rigid peak-staggering production is still the best option for the supply-side reform of the industry to achieve steady growth and high-quality development. It is suggested to unify the peak-staggering production policy, break regional barriers, and achieve a more fair and just peak-staggering production mechanism.

(2)

The "Opinions of the Central Committee of the Communist Party of China and the State Council on Implementing the New Development Concept Completely, Accurately and Comprehensively to Do a Good Job in Carbon Neutralization" points out that by 2025, carbon dioxide emissions per unit of GDP will be reduced by 18% compared with 2020. By 2030, carbon dioxide emissions per unit of GDP will be reduced by more than 65% compared with 2005, and carbon neutrality will be achieved on schedule, and carbon neutrality will be achieved by 2060. Cement industry as the third largest carbon emitters after electricity and steel, the total amount of carbon emissions in 2022 is more than 1.2 billion tons, the task of carbon reduction is quite heavy, the carbon market is one of the core policy tools to achieve the goal of carbon peak and carbon neutralization, through the carbon market to control the total amount of carbon emissions of cement enterprises, the use of market trading mechanism to increase inefficient enterprises. So as to achieve the goal of effectively reducing production capacity and optimizing industrial structure. In 2021, the power industry will be included in the national carbon emissions trading market, and the cement industry should be included as soon as possible, so as to achieve market-oriented capacity reduction through the carbon trading mechanism in the future. The total carbon quota setting and allocation mechanism of

cement enterprises should be designed in combination with the design capacity, off-peak production requirements, the use of alternative fuels and the proportion of electricity purchased, so as to encourage enterprises to develop alternative fuels and new energy sources, and at the same time strictly control enterprises'overproduction and break the regional barriers of off-peak production.

Figure 3: Clinker production exceeds 1.4 billion tonnes

in 2022

Data source: cement big data (.ccement. According to the new standard, there are currently about 4. Measures to reduce production capacity in the cement industry should be further enhanced. In the past, the purpose of effective capacity reduction could not be achieved only by controlling the intensity of energy consumption, which should be supplemented by controlling the total energy consumption (except clean energy). The simultaneous implementation of the two can not only eliminate overproduction (design the total energy consumption index according to the design capacity), but also effectively reduce the total energy consumption of the industry.

Table 3: Standard 2021 and 2012 Cement Unit Product Energy Consumption Index

< IMG SRC = "https://img7.ccement.com/richtext/img/pvf0n7hd5lg1692064767255.2022 year, the concentration ratio of the top ten clinker production capacity in China is about 60%. Compared with foreign developed countries, the concentration ratio of China's cement industry still has a large room for improvement." Large enterprises should play a leading role in joint acquisition of enterprises that want to withdraw from the market, and the remaining enterprises in the region should share the resulting costs, so as to optimize the resources of the whole cement market and improve market concentration. Vigorously promoting the merger and reorganization of the industry is an important supplement to the supply-side reform measures of double control of carbon emissions and energy consumption.