Many people were shocked when it was reported that China used more cement in three years than United States did in 100 years. This is true, but such a direct comparison is problematic. The rapid economic development of the United States, the period of urbanization and China are at different historical stages, and the use of private construction materials in the United States is different from that in China. These factors have resulted in such a large gap in the use of cement between the two. Although we say that this direct comparison is inappropriate, the development of the cement industry is similar in different countries, and we can still learn from the law of the development of the industry, which can be used to judge the future development trend of China's cement industry.
First, China's cement demand slowed down in 2017, and the United States grew steadily.
According to the latest data released by the National Bureau of Statistics, in August 2017, China produced 212 million tons of cement, a sharp decline of 3.7% year-on-year, which exceeded expectations. Since the rebound of cement demand in 2016, the largest monthly decline has also made the cumulative small growth in the previous seven months come to naught, and the cumulative cement production in the first eight months of 2017 has fallen by 0.5% year-on-year. Cement has preservation and geographical limitations, production can basically be considered as demand, the sharp decline in August also means that the market demand for cement is declining.
Compared with the decline in the Chinese market, the demand for cement in the US market was much more stable. In the first six months of 2017, the demand for cement in the US basically maintained a steady growth. By the end of June, the cumulative cement shipments in the US were 45.93 million tons, an increase of 1.74% over the same period last year, and the cumulative imports of cement were 5.12 million tons, an increase of 3.34% over the same period last year. This data is closely related to the economic recovery of the United States in recent years, although the United States has not shown strong growth momentum since the 2008 economic crisis, but it has been in sustained growth. Some economists pointed out that as of May 2017, the economic growth of the United States had lasted for 95 months, the third longest round of growth in 33 economic cycles dating back to 1854.
Table 1: China's cement production in 2016-17 (100 million tons) Table 2: US cement shipments in 2016-17 (10,000 tons)
Source: National Bureau of Statistics, US Geological Survey, China Cement Research Institute
Two, cement demand in China and the United States has passed its peak and will gradually decline .
Looking back at the cement demand data of the United States, we can see that the cement demand of the United States is closely related to the economic development of the United States in various periods. In 1907, 1920-21, 1929-33, 1937-38, 1948-49, 1957-58, 1969-70, 1974-75, 1980-82, 1990-91 and 2007-2012, each economic crisis hit U.S. cement demand hard. If we fill the gap caused by the economic crisis, we can get a smooth upward climbing curve, which is very similar to the climbing curve of China's cement demand.
Table 3: Cement Demand in the United States from 1904 to 2016 (10,000 tons)
Source: USGS, China Cement Research Institute
For the United States, judging from the performance after previous economic crises, it seems that the cement demand in the United States still has a chance to surpass the peak in 2005, but in fact we think that the peak in 2005 is unlikely to surpass. According to historical data, after each crisis in the United States, cement demand has recovered to the pre-crisis level for up to five years, and has grown again, but this time, nine years after the financial crisis, the gap has not been filled, and there is still a 25% gap from the peak in 2005.
Table 4: Cement output in China from 1992 to 2016 (10,000 tons)
Data source: National Bureau of Statistics, China Cement Research Institute
Comparatively speaking, the curve of China's historical cement demand is smoother. Except in 2015, we have not seen any other major changes. If there is any, it is only the financial crisis in 2008 that made the curve of those two years flatter, the growth rate weaker, and there was no decline. The real decline in China's cement demand occurred in 2015, when China produced 2.34 billion tons of cement, down 5.17% from 2.476 billion tons in 2014, the first decline since 1990.
Three, per capita consumption has peaked and the growth rate has slowed down .
As far as the current per capita cement consumption is concerned, China's current per capita cement consumption has reached 1.7 tons/person/year, which is nearly 6.5 times the current per capita cement consumption of 0.26 tons/person/year in the United States, which is already a very large gap. There are differences between China and the United States in terms of building materials and infrastructure construction. For example, private housing construction in the United States generally uses wood as the building frame, and infrastructure construction in the United States has been gradually improved in the past 100 years, but in China, first of all, reinforced concrete is widely used in housing, and large-scale infrastructure construction also occurred after 2000, China spent more than a decade to catch up with the United States. It is also normal for the per capita level to be high.
Table 5: Cumulative cement consumption per capita in China and the United States (tons) Table 6: Year-on-year cement consumption in China and the United States
Source: National Bureau of Statistics, US Geological Survey, China Cement Research Institute
However, we should note that in addition to per capita, cumulative consumption is also an important indicator. At present, China's cumulative per capita cement consumption has exceeded 22 tons, which is only the data after 1990. All of them are expected to be higher. In contrast, the cumulative per capita cement consumption in the United States since 1962 is only 17.54 tons. China is over 30% higher than United States.
From the year-on-year data, we can also see that the per capita cement consumption data in China and the United States is slowing down. In 2016, the per capita cement consumption in China increased by 1.7% year-on-year, and that in the United States increased by 1.3%, both of which have begun to approach zero, especially in China. Compared with the previous super-fast growth of more than 10%, the growth rate of per capita cement consumption in China has dropped significantly.
Four, real estate, infrastructure and rural construction will continue to support the smooth return of cement demand.
Although we believe that China's cement peak has passed, we do not believe that China's cement demand will fall off a cliff.
Figure 7: China's investment in infrastructure construction and real estate development from 1996 to 2016
Data source: National Bureau of Statistics, China Cement Research Institute
China's cement demand is mainly supported by real estate construction, infrastructure construction and rural construction. According to the data released by the National Bureau of Statistics, as of August 2017, China's urban infrastructure investment grew by 16.09% year-on-year, and real estate investment grew by 7.9% year-on-year, continuing to maintain an upward trend on the annual line.
According to the current data, the peak period of real estate construction has passed. Since the end of last year, the government has been strongly regulating the real estate industry. However, under the pressure of the current downward economic channel, the collapse of the real estate market is not what the government would like to see. Once the collapse occurs, it will cause irreparable damage to China's economy; For infrastructure construction, with the slowdown of real estate, local governments are vigorously promoting infrastructure construction, such as urban rail transit construction, railway construction in the central and western regions, and railway construction in the eastern region, which play a better supporting role in cement demand; As for China's rural construction market, although we can see that the rural construction in the eastern coastal areas has been relatively perfect, the central and western regions are still relatively backward, and there is still much room for growth. Even in the eastern region, the ongoing new rural construction has created a large demand for cement.
From the data of China and the United States, we can see that the current peak of cement demand in China and the United States has passed, and both the per capita consumption level and the cumulative consumption level have reached a very high level. China has consumed more cement than United States has used in a century in just a dozen years. China has not only filled the historical gap, but also actually overdrawn the future demand. However, China's demand for cement will not decline in a straight line in the short term. China's economic structure is essentially different from that of the United States. Even the economic crisis has not pulled down China's cement demand. The government will use a visible hand to smooth the economic downturn for the sake of stabilizing the economy. The resulting cement demand will support China's cement demand to decline slowly until it reaches a new stable stage.
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