the Spring Festival, with the successive resumption of downstream projects, cement prices in some areas have risen for several consecutive rounds, the cement industry seems to have accelerated the recovery, and the voice of booming demand is gradually rising. But is this really the case?
The author will analyze the current recovery of cement demand from the aspects of cement shipment rate, inventory, production capacity and annual demand.
First, there is still a gap between
the demand and the normal level. Compared with the same period last year, the cement shipment rate in early March rose to nearly 40%, and the cement shipment rate in February-March was about 10% higher than that in the same period last year. The recovery of cement demand seems to be strongly supported by the data.
However, the spring break holiday earlier this year and the impact of the receding epidemic are variables that cannot be ignored. When we reset the data and stand on the same starting line, the increase in cement shipment rate after the Spring Festival in 2023 will be eclipsed. After the Spring Festival in 2023, the rise of cement shipment rate was significantly slower than normal level in 2019 and 2021, and the gap was further widened with the passage of time-the cement shipment rate in the fifth week after the festival was 2-3% lower than normal level.
In addition, compared with 2022, the cement shipment rate in 2023 is only in a flat state. In the first year after the release of the epidemic, the demand for cement did not usher in spring with the melting of winter snow. What is more noteworthy is that after excluding the epidemic factors, the recovery of cement demand is not even as good as in 2022. In addition to the rapid recovery of demand in some areas such as the Pearl River Delta and Shanghai, there is no bright performance in other areas, especially in the northern region, downstream construction sites and mixing stations have not yet fully resumed work, and the market is slow to start. On the whole, the current downstream demand is flat in the same period and is in a tepid state.
Figure 1: After the festival, the national cement shipment rate is lower than normal level (%)
Data source: cement big data (https://data.ccement.com/)
II. Since the fourth quarter of
last year, the expected demand in the peak season has failed, and the inventory level of cement enterprises has been rising, exceeding 70%. After the spring of this year, thanks to the better implementation of peak staggering and the gradual recovery of demand, the storage level has declined, but it is still higher than same period in 2022, and the high inventory suppresses the price increase. Despite the rise in cement prices in many places in the past month, only a few areas, such as the Pearl River Delta in South China and Jiangsu in East China, have actually been implemented in place. The actual implementation in most areas is limited, and the national cement price has only risen slightly.
Figure 2: High level of cement inventory in China (%)
Source: Cement Big Data (https://data.ccement.com/)
III.
The national cement production capacity is over 3.5 billion tons, and the cement output is 2.36 billion tons, with a surplus rate of 32.5%. In 2022, the demand dropped sharply, the cement output was 2.13 billion tons, the actual demand may be lower, but the production capacity has not been significantly reduced, and the production time of peak staggering has been increasing. According to estimates, the excess rate of cement production capacity will reach 40% in 2022, reaching a new high level, and the market supply will be greatly excessive. At present, the more serious problem in the industry is the serious overcapacity. How to guide the withdrawal of production capacity with low competitiveness and accelerate market clearing under the background of demand fluctuation returning to a reasonable range, so as to maintain the balance between supply and demand in the market and keep the price and profit at a reasonable level should be a question for the whole industry to think deeply.
Figure 3: Current cement overcapacity rate reaches 40%
Data source: Cement Big Data (https://data.ccement.com/)
IV. The industry needs to develop
steadily in the two sessions of 2023. China has set an economic growth target of about 5% in 2023, and the provinces have also raised their GDP growth targets. The domestic economic recovery is clear. In February 2023, the People's Bank of China released the social finance data for January. RMB loans on the credit side increased by 4.9 trillion yuan, and medium and long-term loans to enterprises and institutions increased by 3.5 trillion yuan, all of which reached a record high. The market has strong optimistic expectations for this year.
However, we should see that the current real estate market has not yet achieved a real bottom, especially the new construction area is expected to continue to show negative growth this year, while the pulling role of infrastructure is mainly stock projects, cement demand is expected to decline to a certain extent. Even if this year's credit efforts are "too strong" under the upsurge of "fighting for the economy" after the epidemic, the role of economic structural changes in promoting cement demand is relatively limited. On the contrary, due to the overdraft of Pre-project demand, the future industry demand will inevitably usher in a greater decline. Therefore, we should take a rational view of the current recovery of cement demand.
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