• Wed
  • Apr 16, 2014
  • Updated: 1:02pm

Cement firms on shifting sands

PUBLISHED : Tuesday, 25 May, 2004, 12:00am
UPDATED : Tuesday, 25 May, 2004, 12:00am

China's attempts to dampen investment in the cement industry may foreshadow a shake-out in the sector, industry observers say.


As supercharged economic growth boosts cement production to record levels, the government has targeted the sector, with stiff curbs on credit, an unwritten ban on stock-market listings and increasingly stern admonishments against frivolous investment.


Cement producers have mixed opinions on the measures, with large players generally supporting them and smaller companies protesting their bias against local producers. However, all agree that they will weed out weak suppliers rather than contribute significantly to short-term economic goals.


'China faces an undersupply of high-grade cement and an oversupply of low-grade cement,' said Edward Fung, an analyst with Kim Eng Securities.


'In the long run, these cooling measures will be good for the bigger players, as they will eat up market share.'


Elizabeth Wang Li Shin, an executive director of Chia Hsin Cement Greater China Holding Corp, a Hong Kong-listed company, was upbeat. 'Many people say I should be worrying about the impact of the macroeconomic policies but we are excited because we see many acquisition opportunities,' she said.


China consumes 50 per cent of the world's cement and is the largest producer. Cement production rose 12 per cent to 813 million tonnes last year, according to revised figures released in the first quarter of this year. The initial figure had been 731 million tonnes. Investment in new cement capacity soared 121 per cent.


'The revision was a rude awakening for the Chinese government,' said Jimmy Yeo Cheng Swee, a Singaporean who owns a cement plant in Shaoguan, Guangdong.


The revision of China's cement production figures was partly due to under-reporting by private producers for tax reasons, Mr Yeo said.


In addition, some local governments quietly encouraged production as the central government tried to freeze the sector's expansion, said Huang Rui, an analyst with Xinhua Far East, a credit rating agency.


One example occurred in Guangdong in February, when a local official, Chen Shangru, stated publicly that the province's roaring economy justified expansion of steel and cement production.


The government wants to see consolidation and has opened the sector to foreign participation while encouraging small producers to close. However, it fears that the current explosive growth could lead to a sector-wide collapse, leaving thousands of small businesses bankrupt and their workers jobless.


Of an estimated 6,000 cement factories in the mainland, almost 90 per cent produce a low-grade product.


The People's Bank of China sees annual cement production exceeding one billion tonnes next year, two years earlier than forecast.


Cement prices have generally dropped in Guangdong and the east of the country in the past few weeks, after rising steadily from the beginning of last year until the first quarter of this year. Average prices in the Yangtze River Delta, Chia Hsin's core market, fell to about 350 yuan per tonne in March from a peak of 380 yuan per tonne in October last year.


Industry observers say the drop has little to do with the macroeconomic restrictions.


'I suspect these measures are too late,' said Mr Yeo, who expects 160 millions tonnes of additional production capacity to come on line this year.


At best, the cooling measures would reduce that by 50 per cent, he said.


The credit restrictions also had not stopped smaller producers expanding, as they did not have to go to banks for finance capital, he said.


Similarly, large producers such as Chia Hsin can still find needed expansion capital because they supply prestige infrastructure projects sponsored by governments.


The company, which is providing cement for the 32km Shanghai-Yangshan bridge and other infrastructure projects in Zhejiang and Jiangsu provinces, is investing about US$90 million in new production facilities, according to Ms Wang, who added Chia Hsin had been able to raise its prices recently because of strong demand for the firm's high-grade cement.


Additional reporting by Denise Tsang


Share

Related topics

Login

SCMP.com Account

or