Recently, Hong Kong-listed China Resources Cement Holdings (01313. HK) issued a poor annual performance forecast: profit attributable to shareholders fell by more than 70%, turnover fell by nearly 20%. The red light is not only China Resources Cement, but also the whole cement industry will face unprecedented pressure.
Cement giants collectively turn on the red light, the first negative growth of the whole industry in 24 years
In 2015, the profit attributable to shareholders of China Resources Cement was about HK $1.015 billion, a sharp drop of 75.9% from HK $4.206 billion in the previous year; the operating income also dropped from HK $32.668 billion in the previous year to HK $26.778 billion, a drop of 18%.
China Resources Cement is not the only one to fall, while Western Cement (02233. HK), which is also listed in Hong Kong, turned from profit to loss in 2015, from a profit of more than 39 million last year to a loss of 307 million.
A-share cement listed companies are also not optimistic. Although most of the A-share cement industry companies have not yet released a complete annual report, but from the first three quarters of the data speculation, the annual performance is worrying.
Bread Finance and Economics checked the three quarterly reports of major A-share cement listed companies and found that most of the profits in the first three quarters had declined considerably. In the first three quarters of 2015, the operating income of Conch Cement, the industry leader, fell by about 13%, and its net profit fell by nearly 30%; followed by Huaxin Cement , whose operating profit fell by more than 80%, and its net profit fell by more than 70%.
The poor performance of cement listed companies is only a microcosm of the plight of the whole industry. According to the National Bureau of Statistics, China's cement production declined for the first time in 24 years in 2015, with annual output of about 2.36 billion tons, down 4.9% from the previous year. Cement prices have fallen to a new low since 2008, and the whole industry is facing a comprehensive loss.
Over capacity: China's Cement Production in Two Years Is Enough for the United States to Use for 100 Years
According to the data of China Cement Research Institute and other institutions, in recent years, China's cement production and sales account for more than half of the world's total. In 2014, the global cement output was 4.18 billion tons, and China's output was 2.49 billion tons, accounting for nearly 60% of the global output.
China's cement production even "scared" the richest man, Bill Gates. At the end of 2014, Bill Gates unexpectedly posted a picture on his blog, comparing China's cement production in the previous three years with the cement consumption of the United States in the whole 21st century: China used 100 years of cement in the United States in three years.
In fact, if Bill Gates calculates this account at the beginning of 2016, he will find that it doesn't need three years at all, two years is enough. In the 100 years from 1901 to 2000, the United States used 4.5 billion tons of cement, according to the U.S. Geological Survey, while China's total cement production in 2013 and 2014 was 4.91 billion tons, according to the National Bureau of Statistics. In addition to 100 years for the United States, the remaining 410 million tons are enough for Russia for more than five years.
Overcapacity makes the whole cement industry in trouble, many industry forecasts show that the cement industry is facing the pressure of industry-wide losses, and capacity removal has become a top priority for the industry. In 2015, the Ministry of Industry and Information Technology released a list of enterprises in key industries to eliminate backward and excess capacity, requiring that the task of eliminating backward and excess capacity be completed by the end of 2015; the cement industry eliminated 38.9 million tons.
Eliminate and Add at the Same Time: When Is the End of Capacity Reduction?
However, the elimination of production capacity is not as easy as required by the document, even if 38.9 million tons of "backward" production capacity is successfully eliminated, it only accounts for less than 2% of the current total production capacity.
Cement is actually an industry with "advanced production capacity". Since the industry consolidation in 2004, the number of enterprises in the cement industry has been greatly reduced after a long period of acquisition, merger and reorganization. Large cement enterprises have basically completed the listing at home and abroad.
According to the data of the National Bureau of Statistics, from 2004 to 2014, the new annual production capacity totaled 3.256 billion tons; from 2008 to 2014 alone, the new production capacity reached 2.37 billion tons. According to this data, if all the new additions after 2008 are utilized, the output will exceed the total output of the country in 2015. These new production capacities are often not backward in technology, and even adopt the latest equipment and technology.
Capacity reduction in the cement industry is not a new topic in the past two years. As early as 2009, the problem of overcapacity in the cement industry has attracted the attention of all parties, but new capacity is still increasing, with an increase of nearly 250 million tons in 2014 alone. In 2015, the growth rate declined, but according to relevant data, 34 new dry clinker production lines were built, increasing clinker production capacity by 46.2 million tons.
At present, a lot of cement production capacity is still under construction. According to the performance report of China Resources Cement, many of its production lines are still under construction, and the production capacity of cement and related industries owned by subsidiaries will continue to rise in the next three years. Its cement production capacity forecast for 2016, 2017 and 2018 is 83.3 million tons, 85.3 million tons and 87.3 million tons respectively.
Why is it so difficult to cut overcapacity? This problem is too complicated. After examining the shareholder structure of some large cement listed companies, Bread Finance and Economics found that many of the large cement groups that really have the strength to expand in the past few years are state-owned enterprises or companies directly or indirectly controlled by local governments.
For example, CNBM, China Resources Cement and Ningxia Building Materials are directly or indirectly controlled by central enterprises, while Conch Cement, Jidong Cement, Fujian Cement and Yatai Group are local state-owned assets.
The implementation of the policy of capacity removal requires the implementation of central ministries and local governments, many of whom are shareholders of cement companies. Athletes are also referees, how to play the competition to reduce production capacity?
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