By Han Qicheng
In the second quarter, market price of cement in China continued to fall; demands recovered very slowly, and growth of production fell somewhat. The average price of cement P.O42.5 across the country at the end of the second quarter was RMB 351 Yuan/ton, dropping 8 percent from that at the end of first quarter, and RMB 77 Yuan lower than that in the same period of last year.
The reason why cement is not booming in the second quarter, which is supposedly the boom season, is the slow recovery of demand that results in excessive supply. Due to the sluggish housing industry and the capital construction market, the cement industry continued to suffer stagnation. The recovery of capital construction was tardy, and the number of invested construction projects has been reduced compared with that in the last year. Besides, construction volume has shrunk considerably due to policy restriction on the housing industry, causing obvious influence on cement sales.
In terms of supply, statistics show that in the first half of 2012, 42 dry cement production lines have been added. If these production lines are at work for 310 days a year, the added clinker production capacity is 64.325 million tons; if one ton of clinker can produce 1.4 tons of cement, the added cement production capacity is 90.055 million tons. This puts more pressure on the situation in which supply has already exceeded demand. Meanwhile, manufacturers in some regions have suspended production in synergy in the first quarter so as to wait for the boom in the second quarter, but the boom failed to come, causing break in the synergy and the manufacturers to reduce price. This is another reason for the slip of cement price in the second quarter.
In terms of region, cement price differs in different regions. Synergic efforts in the Northeast cause the price to rise slightly, but price in other regions falls.
Industrial synergy in the Northeast has been maintained, and cement price there is the best of all. Price has been raised once again with the coming of the boom in the second quarter. However, when the market kicked off in May, it’s discovered that demand was not as strong as expected. Low-price cement flooded in from outside the region. In June, the price fell again, eventually staying at RMB 465 Yuan/ton, slightly higher than the RMB 457 Yuan/ton at the end of first quarter.
In the Northwest, capital construction investment accelerated in June after adjustment in April and May. Cement price in benefited area went up again. However, with the coming of the farming season, the price fell again. The average price of cement P.O42.5R was RMB 356 Yuan/ton at the end of the second quarter, RMB 8 Yuan lower than that at the end of the first quarter.
In eastern China, demand was sluggish, industrial synergy broke down, supply and demand relation was thrown out of balance, and the price of cement plunged, from RMB 370 Yuan/ton at the end of the first quarter to RMB 340 Yuan/ton. Price in the middle-south market also went down all the way. Cooperation of enterprises in central China was solid, but, due to bad weather, demand remained sluggish and the market can barely be sustained, leading to continuously fall in the price.
The 3rd quarter is the slow season conventionally. Besides, as price in most regions has yet to reach the bottom line of the cost of small companies, there is still space for the price to go further down and demand is not expected going up. If funding is in position, construction of some projects can be expected to start in September, which would somewhat sustain demand. However, the problem of over capacity still exists, so minor demand support can hardly drive the upward trend of the cement industry. Nonetheless, the government's effort to promulgate policy that aims to eliminate outdated production capacity is rather vigorous. If such policy can be properly implemented, the over capacity pressure can be offset to certain extent.
The writer is a cement industry analyst of Guotai Junan Securities
