[Commentary] Looking at the Macro Economy in the First Half of the Year from the Perspective of Cement: a glimpse of it

On July 17, the National Bureau of Statistics released macroeconomic data for the first half of the year. Data show that GDP in the first half of the year was 59303.4 billion yuan, an increase of 5.5% over the same period last year in terms of constant prices, and the overall economic operation has rebounded well. Among them, the added value of the secondary industry where the cement industry is located is 23068.2 billion yuan, an increase of 4.3%. The pulling effect of

unit GDP on cement production has dropped to a new low. Consumption is the core driving force

of GDP growth. In the first half of 2023, the cement output per 10000 yuan GDP was only 0.16 tons, and the cement output per unit GDP was the lowest in history since the founding of the country, down 74% from the same period in 2000. Compared with the first half of 2014 (the peak period of cement consumption), the decline rate has accelerated since 2017.

Figure 1: Trend

of cement output driven by unit GDP in the first half of the year Data source: National Bureau of Statistics

The weakening of the pulling effect of GDP on cement shows that the structure of the domestic economy has changed significantly, and it is no longer mainly driven by investment. The contribution of consumption to GDP growth is the core force. From January to June, the total retail sales of consumer goods reached 22.76 trillion yuan, an increase of 8.2% over the same period last year. However, it should be noted that although the total retail sales of consumer goods in the whole society have increased, the cumulative growth rate of consumer goods CPI has shown a trend of declining month by month this year, with only 0.5% year-on-year growth in January-June, and even negative growth in April-June. The author believes that the recovery of consumption is mainly due to the normal recovery brought about by the lifting of relevant controls after the end of the epidemic, and the weak CPI of consumer goods has reflected a certain degree of consumption weakness in the consumer goods sector. From 2000 to 2019, the total retail sales of consumer goods in China increased by more than 8%, and in the absence of an epidemic, it is estimated that the total retail sales of consumer goods in the first half of 2023 will reach 24 trillion yuan, while the actual total recently released will be 5.9% less than that, indicating that the epidemic has suppressed due demand. The end of the epidemic has only restored some of the demand.

Figure 2: Comparison between the actual value and the assumed value of the total retail sales of social consumer goods (100 million yuan)

Data source: National Bureau of Statistics

Cement Price Index (CEMPI) is still running at the bottom Reflecting the weakness

of investment, the future demand for cement is determined by investment, while the current investment rhythm and changes can be reflected by cement. Since this year, the cement price index (CEMPI) has continued to fall, with CEMPI falling 19% year-on-year in June. The cement price index (CEMPI) is of great significance to industrial investment and even monetary policy, and the trend of PPI can be predicted one month in advance according to the trend of cement price. The cement price index (CEMPI) fell sharply year-on-year and continued to run at a low level for many months, reflecting the weakness of current investment (especially investment in fixed assets construction projects). From January to June, fixed asset investment increased by 3.8%, and fixed asset investment in construction and installation projects increased by 3.2%. Not only did investment growth continue to decline, but the gap between investment growth and GDP growth widened further, and the contribution of investment to GDP continued to decline. In addition, the growth rate of private investment has been negative since this year, and the investment confidence of enterprises is insufficient. The continuous weakening of CEMPI and the high inventory level of the industry may further affect the investment confidence of enterprises.

Figure 3: Changes

in the Year-on-year Growth Rate of CEMPI and the Cumulative Year-on-year Growth Rate of Fixed Investment Data Source: Cement Big Data (https://data.ccement.com/)

There is a long way to go for the recovery of the industrial economy. In the

first half of the year, the added value of industries above the national scale increased by 3.8% year-on-year, weaker than GDP growth rate, and the recovery of industrial economy has a long way to go. From the perspective of subdivision, the recovery of industrial economy has shown serious differentiation this year. The industrial added value of automobile manufacturing, electricity, heat, gas and water production and supply industries increased by 13.1% and 4.1% respectively, while the mining industry and non-metallic mineral products industry related to building materials recovered poorly. In the first half of the year, the industrial added value of the non-metallic mineral products industry increased by only 0.4% year-on-year, and the recovery of the industrial growth value of the building materials industry was 3.4 percentage points weaker than overall industrial level; the mining industry increased by 1.7% year-on-year, which was also significantly weaker than overall industrial level. From the perspective of economic benefits of the cement industry, the total profit of the cement industry is expected to decline by more than 60% in the first half of the year. The obvious contrast between traditional resource-based industries such as cement and new economy (new energy for automobiles and new energy for electric power) shows that significant changes are taking place within the industrial economy and the fourth industrial revolution is accelerating.

Figure 4: Comparison

of industrial added value of industrial and non-metallic mineral products industry Source: Cement Big Data (https://data.ccement.com/)