1. The experience of the cement industry in the past 20 years: Policies and corporate behavior determine the benefits
of the industry. The demand change of China's cement industry has experienced three stages of development: high-speed development period (2004-2012), high-level platform period (2013-2021), and downward demand period (from 2022 to now).
Figure 1: Market trend
of China's cement industry in the past two decades Source: Cement Big Data (https://data.ccement.com/)
During this period, China's cement industry realized accumulative profits. The total profit created in the high-speed development period is 384.2 billion yuan, with an average annual profit of about 42.7 billion yuan; the total profit created in the high platform period 1. From the comparative analysis of industry profit data and demand growth, we can see that the peak of industry benefit in the past 20 years appeared in the high platform period of demand, rather than in the stage of rapid growth of demand.
From 2013 to 2021, China's cement consumption is about 2.3-2.4 billion tons per year, and the industry demand is stable at a high level. At the same time, the cement industry TOP10 capacity concentration gradually increased from 51% to about 55%, compared with the high-speed development period, the increase in concentration is relatively small.
However, the trough and peak of the cement industry's benefit appear at the same time in the high platform period, and the change range of the total profit and profit margin is more obvious. Since 2016, the profits of the cement industry have gradually recovered from the low ebb. From 2018 to 2021, the total annual profit of the cement industry remained above 150 billion yuan, reaching a peak of 186.7 billion yuan, and the profit margin of sales was between 15% and 18%, far higher than the historical average. In May
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. It is required to carry out peak staggering production. In October of the same year, the Ministry of Industry and Information Technology and the Ministry of Environmental Protection jointly issued the Notice on Further Improving the Peak-Staggered Production of Cement, which made specific arrangements for the peak-staggered production of the cement industry. Due to the effective implementation of the peak-staggered production policy, the problem of overproduction was effectively solved, which laid the foundation for the substantial growth of the industry's benefits.
2. Industry self-discipline
under the background of industry consolidation Since 2016, China's cement industry has experienced important mergers and acquisitions such as the merger of "two materials", the reorganization of BBMG Jidong and the integration of Lafarge China by Huaxin, as well as the improvement of the scale and strength of Conch, Red Lion and China Resources, which has greatly enhanced the influence of leading enterprises. Under the guidance of large enterprises and the strong organization of industry associations, the industry structure has changed from competition to competition and cooperation, and the concept of industry self-discipline has gradually been disseminated and recognized. The experience of the
cement industry in the past two decades shows that although the benefits of the industry are related to market demand, the decisive factors are the industry policy and the business development concept and behavior of enterprises.
2. Current situation and major challenges
faced by the cement industry Domestic cement demand continues to decline, and the pressure of overcapacity is further intensified.
Due to the continuous decline in investment in fixed assets, especially in real estate, the domestic demand for cement has accelerated its decline, and the pressure of overcapacity has further intensified. From the demand point of view, in the first half of 2024, the sales boom of the real estate industry was low, land transactions and new construction continued a negative growth trend, and real estate investment continued to decline. At the same time, due to the slow issuance of new special bonds and the risk control of local debt, the start-up rate of infrastructure projects is not as good as expected, and the pulling effect on investment is weak.
According to the data of the National Bureau of Statistics, the national cement output from January to June 2024 is 85047 million tons, with a year-on-year decrease of 10. According to the existing data, the national cement output in 2024 is expected to drop to less than 1.9 billion tons, with a year-on-year decrease of more than 7%.
Figure 2: National cement output and year-on-year growth rate
from 2013 to 2024 Data source: Cement Big Data (https://data.ccement.2024 that in the first half of the year, the average value of the national cement-coal price difference index was 96.5 points. Year-on-year decline 20. Although the absolute value of coal prices fell compared with the same period last year, the decline was significantly less than Figure 3: Trend of supply and demand, cost and price of cement industry in the first half of 2013-2024 Data source: cement big data (in terms of https://data.ccement. price, In the first half of 2024, the national average price of cement was 332.9 yuan/ton, with a year-on-year decrease of 18. Specifically, from the beginning of the year to April, as the recovery of market demand fell short of expectations, the competition in the cement industry became white-hot, and the focus of transactions continued to decline. Since May, some regions have increased their efforts to stagger the peak, strengthened the self-discipline consciousness of the industry, coordinated the promotion of price increase and recovery, and the price of cement has bottomed out. By the end of June, the average price of cement in China had basically returned to the same period last year. Figure 4: The trend of national cement average price in 2023-2024 Data source: Cement Big Data (https://data.ccement. Among them, Northeast China has performed better in peak staggering and industry self-discipline, and the inventory pressure has been alleviated. The price index of cement increased by 34.6% compared with the beginning of the year. Southwest China and North China began to push up the price in May, and the price index of cement at the end of June increased by 11.9% and 6% respectively compared with the beginning of the year. In addition, the price trend of cement in Northwest China was relatively stable. Figure 5: Trend of cement price index in six regions of China in the first half of 2024 Data source: Cement Big Data (https://data.ccement.) Data show that the cement industry suffered a loss of about 3.4 billion yuan from January to May in 2024, and the loss of enterprises exceeded 55%. Whether we can achieve benefit growth throughout the year depends on consolidating the achievements of industry self-discipline since late May. Figure 6: Price and Profit Trend of Cement Industry from 2015 to 2024 Data Source: Cement Big Data (https://data.ccement. The task of transformation and upgrading of the cement industry is heavy. How to achieve sustainable and healthy development of the industry and enhance international competitiveness will become a major issue facing the industry in the future. 3. Countermeasures and suggestions (1) Firm confidence: Historical experience has repeatedly proved that confidence is more important than gold. The cement industry has the foundation, experience and ability to achieve high-quality development of the industry. (2) Overcoming difficulties: We will strive to promote the high-quality development of the industry by tackling the three major challenges of steady growth, capacity reduction and transformation and upgrading. 1. Go all out for steady growth: strengthen the organization and coordination of the association and the guidance of large enterprises, adhere to and optimize the policy of peak staggering production, strengthen the ecological construction of the industry, and go all out for steady growth. (1) Adhere to and improve off-peak production, reduce production and control inventory. (2) Comprehensively strengthen the ecological construction of the industry (note: correctly handle the four relationships between share and price, short-term and long-term, local and overall, and enterprise and industry), strengthen industry self-discipline, oppose unfair competition, and stabilize the market and price. (3) Deepening the market-oriented reform of enterprises in an all-round way, practicing hard internal skills, reducing costs and increasing efficiency. (4) Give full play to the leading role of large enterprises and the organization and coordination role of trade associations. (5) Give full play to the positive role of propaganda, guidance and supervision of the media and create a healthy atmosphere of public opinion. (6) At present, we should focus on: strengthening the guidance of large enterprises and industry self-discipline; staggering the peak and stabilizing the market, stabilizing the price and restoring the price; doing a good job of staggering the peak production in the off-season from June to August, stabilizing the price and controlling the inventory; making good preparations for turning losses into profits in the second half of the year, and striving to increase the profits of the whole industry by more than 10% year-on-year. In the short term, the cement industry must unify its objectives and firmly implement peak-shifting production. It is suggested to establish a peak-shifting production mechanism jointly coordinated by the government, industry associations and large enterprises. 2. Unswervingly deepen the supply-side reform: adhere to the two-way efforts of policy and market, resolutely control new growth, eliminate backwardness, improve industry concentration, and deepen the supply-side structural reform of the industry. (1) Improve the policy of capacity replacement, strengthen the policy of double control of energy consumption and pollutant discharge, and strictly prevent technological transformation, replacement and renewal. Strictly implement the Special Action Plan for Energy Conservation and Carbon Reduction in Cement Industry, and by the end of 2025, the national cement clinker production capacity will be controlled at about 1.8 billion tons. In the medium and long term, we will further intensify the reduction of production capacity and strive to reduce the national cement clinker production capacity to less than 1.2 billion tons by 2030. At the implementation level, energy consumption and pollutant emission control are important grasps to achieve the goal of capacity removal. At this stage, the control of unit intensity has been basically established, but the total amount control policy needs to be further strengthened. Combining the policies of energy consumption control, pollutant emission control and carbon emission control with the policies of peak staggering production and capacity replacement will greatly enhance the effectiveness of the policies. (2) Summarize, learn and draw lessons from the excellent experience at home and abroad, formulate and implement supporting policies and measures to deepen the supply-side structural reform of the cement industry and promote the high-quality development of the industry (reduce production capacity, improve industry concentration, transformation and upgrading). Taking Japan as an example, in the 1980s, the Provisional Measures Law for the Improvement of Specific Industrial Structure and the Basic Plan for the Improvement of Cement Industry Structure were promulgated to support the integration of industry enterprises and market from the policy level, to grant the anti-monopoly exemption system to the cement industry, to exempt the improvement of the concentration of the cement industry, and to make the cement industry more concentrated. Promote the cement industry to improve industry concentration and solve the problem of overcapacity. At the same time, enterprises should be encouraged to cooperate and allowed to act together in production, sales and transportation to avoid vicious competition. (3) We will intensify market-oriented efforts to eliminate backward production capacity and inefficient assets, joint restructuring and market integration, accelerate capacity reduction and improve industry concentration. (4) The experience of Zhejiang cement industry in using policy and market mechanism to promote supply-side structural reform to achieve high-quality development is worth summarizing and popularizing: The Zhejiang Provincial Government has formulated a series of policies on energy conservation, environmental protection, mining, transformation and upgrading, and the elimination of backward production capacity in the cement industry, which has accelerated the upgrading of high-end, green and intelligent technologies in traditional industries such as cement, and accelerated the withdrawal of backward production capacity. In 2017, Zhejiang Province formulated and issued the Action Plan for the Comprehensive Transformation and Upgrading of Traditional Manufacturing Industry (2017-2020). Subsequently, the Economic and Information Commission of Zhejiang Province organized the formulation of the Five-Year Plan for the Transformation, Optimization and Upgrading of the Cement Industry in Zhejiang Province. " On the other hand, Zhejiang Province is more stringent in the implementation of the capacity replacement policy, and has really achieved the goal of reducing the total amount and optimizing and upgrading. From 2018 to 2024, the production capacity replacement policy was strictly implemented, and the production capacity in Zhejiang Province was 1.0: 1. A total of 4 production lines were replaced, with a production capacity of 7.29 million tons, and 12 production lines were withdrawn, with a production capacity of 11.78 million tons, and 4.49 million tons of production capacity were reduced in the process of replacement. (2) Market-oriented mechanism: through the market-oriented integration of large groups, optimize the layout, optimize the asset structure to reduce production capacity, eliminate and shut down 39 clinker production lines, with a total capacity of 25.14 million tons, accounting for 61.9% of the total capacity; Through market-oriented competition, 15 clinker production lines were eliminated, with a total capacity of 7.07 million tons, accounting for 17. Through market-oriented docking of large and small kilns, 8 clinker production lines were eliminated, with a total capacity of 3.22 million tons, accounting for 7. In the past ten years in Zhejiang, 69 clinker production lines were shut down and withdrawn. The clinker removal capacity is 39.92 million tons. The number of cement clinker production enterprises in Zhejiang Province decreased from 48 to 7, and the concentration of clinker production capacity of the top three enterprises increased to 87.During 2019-2023, the utilization rate of clinker production capacity in Zhejiang Province was stable at more than 80%. Figure 7: Change Trend of Cement Output, Clinker Capacity and Clinker Capacity Utilization Rate in Zhejiang Province from 2011 to 2023 Data Source: Cement Big Data (https://data.ccement. Figure 8. 9: Profit of cement industry in Zhejiang Province from 2011 to 2023 Data source: Cement Big Data (https://data.ccement. ) (1) Accelerating green, low-carbon and digital transformation. (2) Optimization and upgrading: to accelerate the optimization of the enterprise's market layout, industrial chain, product structure, asset-liability structure and organizational structure; to accelerate the transformation and upgrading of high-end, energy saving, emission reduction and intellectualization, and to improve the sustainable development ability of the enterprise. 4. Strengthen international cooperation and develop international markets. Note: According to the speech materials of Xiao Jiaxiang, Executive Chairman of China Cement Association, at the "2024 High Quality Development Conference of Cement Industry".
