11, Huaxin Cement released a record of investor relations activities. President Li Yeqing exchanged views with investors on issues such as capacity clearance and enterprise integration.
Ask: Please introduce the future capacity clearance path of the cement industry, the pattern of the industry, including how long it may take to digest. In the process of capacity clearance, everyone's understanding is often share priority, price will fall, you just mentioned the price is the basis, how to make a balance in this process?
Answer: This year marks the 200th anniversary of the birth of Portland cement. Cement products are an industrial necessity with slow iteration. The homogenization of products leads to market competition mainly depending on price. This has also led to many peers in the face of the current situation to emphasize the elimination of some backward production capacity through completely market-oriented price competition.
In fact, there is a professional misunderstanding that more than 90% of the production lines in China's cement industry are new dry process production lines built after 2000, and the scale of production lines is getting larger and larger . Germany, the birthplace of cement rotary kiln, still retains the old production line of vertical kiln and Lipol kiln. From foreign experience, when the regional market demand is insufficient, it is not the larger the production line, the better. This has been verified with the change of domestic demand situation, such as our local market in Guizhou.
However, it is not easy to reach a consensus on this misunderstanding. From the actual situation, under the "prisoner's dilemma" situation, the expected capacity clearance has not been achieved through price competition.
China began to move towards market economy in 1993, and today it has only 30 years of market economy experience. It should be said that it is still in the initial stage of market economy. At present, the problem of overcapacity we have encountered has been experienced in some developed markets abroad.
In Harvard's management theory, the "prisoner's dilemma" solution to the competitive strategy of the surplus market has long been put forward, and the effect of mature countries such as Europe and North America has also been verified.
In fact, most of our overseas investments in these developing countries are also overcapacity, but why can they maintain market stability? Relatively few operators and understanding of the "prisoner's dilemma" strategy, so that prices maintain a reasonable level, naturally can also get a reasonable return.
I think the domestic cement industry should also learn from their experience in market-oriented capacity clearance, and adopt more M & A (Mergers and Acquisitions, mergers and acquisitions). Considering the current situation of the domestic industry, we should focus on the way of Merger in the form of shares.
At present, the popular "share is the foundation, profit is the purpose" in the industry is actually not in line with the principles of economics. Share is the basis, so what is the basis of share? If you want to realize the share and sales volume, especially in the downward stage of demand, you must fall through the price, and the profit will naturally become a victim.
Q: At what time will this round of consolidation in the cement industry take place, and are there any small businesses willing to be merged? What is the difference between the reopening of the capacity clearance cycle and the previous one?
Answer: In the last round of domestic integration, CNBM made a very big merger. At that time, I said that the overall direction was correct, but the time was not ripe, and the result was unpredictable, because the demand at that time did not reach the top. The merger should start in a downward cycle, not in an upward cycle. What you pursue is the profit of future growth, so the price you pay is the price of growth, and the total cost is naturally higher.
Now you can see that when you don't make money, it becomes a burden. Therefore, it is a more appropriate time to integrate in the downward cycle of the industry.
Now this time should be said to be a good merger cycle, because the overall demand is declining, the market is not good, after the merger will gain a profit.
Of course, there must be people who are willing to do it, people who are willing to merge, and people who are willing to be merged. Some enterprises, for example, are now losing money, the merger can make money, the need to make a model case after the integration speed will become faster.
One way of thinking is that whoever is in difficulty will start first, for example, the Northeast market has now started some regional integration; the other way of thinking is that whoever is "rich" will start to push the merger, which can maintain the status of "rich".
Q: I would like to ask President Li. In the early years, you mentioned that it was reasonable to keep the profit margin of the cement industry at about 30% by referring to international experience. Would you like to ask if there is any change in your view now, including how to look at the future? Then the second question is that in the expectation of this round of industry cycle adjustment, what are your views on the timing and extent of the adjustment? Thank you.
A: My view on the first question remains unchanged. This is a cognitive process. From the trend of overcapacity in the cement industry in Europe and the United States, the earnings are very good, and the gross profit rate of 30% is the acceptable level. Japan and South Korea in
Asia have also gone through this process and experienced consolidation. The concentration of the top three industries in Japan is now more than 80%, and the concentration of the top five cement industries in South Korea is more than 90%. After the merger, they will move towards a more rational situation, and the stability of market expectations will be stronger.
In 2015, the domestic cement industry was also very miserable, and the leading enterprises in the industry formed a consensus, resulting in a five-year golden period.
The second question is that from the current situation and trend, this round of adjustment should not be too long.
Ask: How does the company look forward to the competitiveness of Dayao Line and Xiaoyao Line? Is the kiln line with a daily clinker output of less than 1,500 tons likely to face capacity clearance in the future?
A: I have always believed that the larger the scale, the higher the efficiency and the lower the cost is a false proposition. In the market growth cycle, it may be right to have a large production line with high efficiency, but it may not be right when the demand goes down.
In the downward cycle of demand, price is the basis of share and sales volume. The price of sacrifice can be compared with the cost reduction. If the cost is reduced by 20 yuan and the price is reduced by 100 yuan, can the benefit recover? So what we must do is to improve the efficiency in the process of balancing supply and demand, not to break the balance of supply and demand on a large scale for the sake of improving efficiency. This is my point of view.
The small kiln line can also meet the emission and consumption standards, and can also achieve high fuel substitution ratio and low carbon emission level. In addition, when the regional market demand is insufficient, the small kiln line is easier to achieve capacity release, and the efficiency of the large kiln line may be less than that of the small kiln line.
Huaxin's technical strength can be achieved from 1,000tpd to 14,000tpd kiln lines, but Huaxin's investment philosophy always focuses on matching the regional market demand, whether domestic or overseas, is to choose the production line scale suitable for market demand.
