By Zhu Junbi
According to the preliminary verification of China Cement Association, the cement industry added 125 new production lines in 2012, increasing clinker production capacity by 160 million tons, further exacerbating the production capacity excess of the cement industry. Under the great pressure of excessive supply, total profit of the cement industry in 2012 decreased by nearly 50 percent year on year.
Statistics from China Cement Association show that total profit of the cement industry in 2012 was about RMB 56 billion Yuan, dropping nearly 50 percent compared with that of 2011.
The numbers may seem surprising at first. The reporter remembers that Lei Qianzhi, honorary chairman of China Cement Association, when interpreting the China cement industry prosperity index at the beginning of last year, pointed out that the total profit of more than RMB 100 billion Yuan of the cement industry in 2011 had benefited mainly from the improved production concentration level that had been the result of the industry's attaching great importance to the structural adjustment of enterprises as well as the industry's initializing strategic restructuring at an early stage. Then, what does the halved profit of the cement industry in 2012 signify? What have been the main causes of it?
According to Kong Xiangzhong, Secretary General of China Cement Association, compared with the greatly improved economic performance of the cement industry in 2011, market demand in 2012 was lackluster; overall operation of the industry remained calm and steady, without any dramatic fluctuation. At as early as the beginning of 2012, experts had predicted that it wouldn't be realistic to expect annual profit growth equal to that of 2011. Now the result of the profit of the industry cut by almost a half is even better than the expected 60 percent profit fall. If compared to industries like steel and coal that also face overall produce excess, the profit reduction of the cement industry doesn't look that bad after all.
Analysis finds that the fundamental cause of the half-cut profit is over capacity. In 2011, the high profit of the cement industry relied not only on the hard work of the industry, but also the powerful pulling force of the investment fervor in the year. With high profit, blind investments followed immediately, resulting in plenty of low-level redundant construction, market chaos, and unbalanced supply-demand relation.
At present, the pressure of excessive cement production capacity has not been noticeably mitigated. According to statistics from National Bureau of Statistics of China, in December 2012, cement output of cement enterprises above designated scale in China amounted to 181.8 million tons, up 5.4 percent year on year; annual cement output of cement enterprises above designated scale in China amounted to 2.184 billion tons, up 7.4 percent year on year. Also, according to the preliminary verification of China Cement Association, the cement industry added 125 new production lines in 2012, increasing clinker production capacity by 160 million tons, further exacerbating the production capacity excess of the cement industry.
Therefore, with comparatively stable market demand, it is rather normal that total profit of the cement industry was cut by half under the great pressure of excessive production capacity and as the new production capacity launched at the end of 2012 was released collectively. Meanwhile, the fact that the cement industry still managed to achieve an annual profit of RMB 56 billion Yuan is a reflection of the role large enterprises have played in the synergy of the industry.
It is learned that large enterprises and groups have played their roles as leaders of the industry dutifully as demand slowed down in the market. They attached importance to production control and made adjustment according to demand in a timely manner. In 2012, the number of times local cement associations worked with cement enterprises to restrict production was much bigger than that in the previous year, and the production restriction involved numerous regions, trying their best to create pressure on market supply. In July 2012, in spite of the fact that the industry was operating at a low level and most enterprises are making little profit or even suffering losses, investments could still boost the industry instantly thanks to the synergy effect. Compared with other industries that have excessive production capacity, large enterprises of the cement industry have played an important role in maintaining fair play and industrial profit in the market, which has been a major highlight in the development of the cement industry in 2012.
Now that the era of rapid growth and high profit is gone, the cement industry should get a clearer picture of the development environment, discard the extensive development model, accelerate the change of growth model, and attach more importance to the quality and efficiency of development. In the face of excessive production capacity, the task of top priority for the cement industry at the moment is to enhance restructuring and consolidation and promote industrial synergy. What happened last year has been a lesson for cement enterprises: more production and more sales do not necessarily mean better growth. The sustainable and healthy development of the industry can be achieved only when supply and demand are balanced, price is stabilized, and reasonable return is guaranteed. Therefore, the key for the cement industry to guard their profit this year is to make vigorous effort to solve the problem of excessive production capacity and give better play to the leading roles of large enterprises.
