Recently, the National Bureau of Statistics announced the economic data of March, and the GDP growth rate of the first quarter was 4.5%, exceeding the 4.0% level expected by the market consensus; as for the cement industry, the cumulative cement output from January to March was 40234 million tons, with a year-on-year increase of 4.1%, of which the cement output in March was 205.8 million tons, with a year-on-year increase of 10.4%. Faced with such a bright economic report card and the unexpected increase in cement production, the voice of a comprehensive recovery in cement demand has sounded from time to time, but is this really the case?
First, the high growth rate of infrastructure will drive the demand
for cement in 2023, and investment will still play an important role in stabilizing the macroeconomic market. According to this year's "two sessions" arrangement, the new special debt quota is 3.8 trillion yuan, the new quota is the largest in all years. Under the upsurge of "all-out economic struggle", local governments have accelerated the progress of special debt issuance. In the first quarter of 2023, the special debt issuance quota is 1.36 trillion yuan, the issuance progress accounts for 35.71% of the whole year, and the financial expenditure continues to be ahead of schedule. This provides continuous financial support for the construction of infrastructure projects.
Figure 1: Rapid progress of special bond issuance in the first quarter of 2023 (%)
Data source: Cement Big Data (https://data.ccement.com/)
With favorable policies and financial support, infrastructure investment in the first quarter remained high. The demand for cement is obvious. Data show that from January to March 2023, the growth rate of infrastructure investment was 8.8% (narrow sense), 0.3 percentage points faster than that of the same period last year. In particular, the growth rate of road transport and railway transport, which are closely related to cement demand, was significantly accelerated, with the growth rates of 8.5% and 17.6% respectively, far exceeding the growth rate of the same period. With the epidemic subsiding, the physical workload is accelerating. According to the high-frequency data, the operating rate of petroleum asphalt plants (road construction is the main area of downstream demand for asphalt) has accelerated since March and is higher than same period, which also confirms that the physical workload of road construction is accelerating. In the first quarter, infrastructure construction, especially in the field of transportation and road construction, has formed a strong support for cement demand.
Figure 2: Road transport industry and railway transport industry have a higher growth rate Figure 3: The operating rate of petroleum asphalt plants is higher than that of the same period (%)
Data source: Cement Big Data (https://data.ccement.com/)
II. During the same period, the base of cement output was low
due to the epidemic. In March 2022, the national cement output was 18655 10,000 tons, down 5.6% from the same period last year. The Spring Festival in 2022 is 10 days earlier than that in 2021. According to the normal rhythm of resumption of work, the demand for cement in March 2022 should be better than that in the same period of 2022. However, the epidemic situation in the whole country was one after another and became more and more serious, which seriously interfered with the recovery process of demand, resulting in the decline of cement production instead of rising. The low base is also an important factor leading to the higher year-on-year growth rate of cement production in March 2023.
Figure 4: Lower
cement production in March 2022 Data source: Cement Big Data (https://data.ccement.com/)
III. Mill operation rate increased and supply increased significantly
. The Spring Festival was earlier this year. After February, the pace of downstream resumption was faster. With the gradual recovery of demand, the mill operation rate showed a rapid upward trend. Especially after the middle and late March, many kilns were shut down one after another, and the mill operation rate further increased. By the end of March, the national mill operation rate was 43.42%, an increase of 8.91 percentage points over the same period, and the supply of production side increased significantly.
Figure 5: Rapid increase of mill operation rate in March 2023 and higher than same period (%)
Data source: cement big data (https://data.ccement.com/)
IV. The current demand is still less optimistic
than that of the whole year. Although the current demand of the cement industry shows a recovery trend, it has not reached the normal level in previous years, and the demand performance is relatively flat. At the same time, the recovery rhythm of the supply side production is obviously faster than that of the demand side. The substantial increase in cement production in March can not truthfully reflect the improvement of the demand side. Cement big data shows that since March, the ratio of cement and clinker storage capacity has gradually increased. At present, they are 66.92% and 63.07% respectively, reaching the absolute high level in the same period. The problem of high inventory in the industry needs special vigilance, which will have a greater impact on the trend of this year's market.
From a macro point of view, although the economic data in the first quarter exceeded expectations and the momentum of economic recovery remained unchanged, the foundation of recovery was not very solid, and the sustainability remained to be observed. In addition, real estate investment has not yet stabilized, the decline in March has expanded, while the growth rate of infrastructure investment has also shown signs of slowing down, so we should maintain a rational observation of the current cement production, and the demand for the whole year should not be too optimistic.
Figure 6 and Figure 7: The ratio of cement and clinker storage capacity has gradually increased since March and reached a high level in the same period (%)
Data source: Cement Big Data (https://data.ccement.com/)
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