In recent days, the RMB has continued to depreciate against the US dollar. On August 15, the offshore RMB exchange rate against the US dollar once fell below 7.3. This time, it has fallen below 7.3 again since October 2022. Organizations predict that in the second half of the year, the RMB may depreciate to 7.5. If the RMB continues to depreciate, what impact will it have on the cement market. Since
2014
, the RMB has experienced three major depreciation cycles, and the performance of cement prices in each depreciation cycle is different, but in each depreciation cycle. There are shrinking years for cement demand. In the first cycle, the apparent consumption of cement shrank by 5.32% in 2015; in the second cycle, the apparent consumption of cement shrank by 4% in 2018; in the third cycle, the apparent consumption of cement shrank by 10.43% in 2022.
Table 1: RMB depreciation and cement price
Data source: Cement Big Data (https://data.ccement.com/)
When RMB depreciates against the US dollar, the US dollar appreciates against RMB. The factors for the appreciation of the US dollar are very complex, and the US dollar interest rate hike is one of the main reasons. Since this year, the Federal Reserve has continued to raise interest rates, and the target interest rate of the Federal Fund of the United States has risen from 4.5% at the beginning of the year to 5.5% at present, without excluding further increases. In the case of US dollar interest rate hike, the currencies of non-US dollar countries in the world can hardly escape the fate of devaluation.
Figure 1: Trend of
US Federal Funds Target Interest Rate Data Source: Cement Big Data (https://data.ccement.com/)
What is the impact of the continued depreciation of the RMB on the cement market?
(1) The pressure
on the demand for cement on the real estate side is closely related to the expectation of downward pressure on the economy, especially the recently released data on social finance and other related data, which has exacerbated market concerns. Consistent with the shrinking demand for cement, each of the three RMB depreciation cycles since 2014 has seen a sharp slowdown or even negative growth in investment in real estate construction projects, while the slowdown in investment in real estate construction projects has directly dragged down the demand for cement. The author believes that the devaluation of the RMB will further affect the real estate market, such as increasing the cost of real estate enterprises with more US dollar debt, and increasing the risk of further downward housing prices. The pressure of the real estate market will continue to be further transmitted to cement, concrete and other related industries.
(2) Pressure
on cement cost Coal is the main fuel for domestic cement enterprises, and coal price accounts for the largest proportion of cement cost. The depreciation of RMB will weaken the price advantage of imported coal, while the demand for overseas coal has fallen this year, the international coal price has continued to decline, and the domestic coal supply is relatively adequate, so the coal price may fall further. Although the fall in coal prices has reduced the cost of cement enterprises, it has also weakened the cost support of cement prices. The surplus problem of cement industry is far greater than that of coal industry, and it will become extremely sensitive to the decline of coal price, which will seriously restrict the upward space of cement price.
However, it is worth noting that in the three rounds of RMB devaluation cycle since 2014, although the demand for cement in the second round of RMB devaluation cycle has also shrunk, the industry still maintains good economic benefits. The author believes that this is due to the implementation of supply-side reform measures in the industry, which avoids large fluctuations in the industry economy. During each round of RMB devaluation, the cement industry either saves itself through the supply side or enters a round of industry integration cycle.
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