Huge infrastructure projects will drive demand for cement in Shaanxi province, but West China Cement will slow its capacity expansion in the next few years to lighten its debt burden. The Hong Kong-listed firm's cement production and sales are mostly in the northern province.
One such project is the resettlement of 2.4 million people in southern Shaanxi. The project aims to move 2.4 million people between 2011 and 2020 at a total cost of 110 billion yuan (HK$136 billion), said Tian Zhenjun, chief executive of West China Cement. It is expected to use 12 million to 14 million tonnes of cement, of which the firm supplied one million tonnes last year, Tian said.
The people living in southern Shaanxi's mountainous areas have inadequate water supplies and health care, and will be resettled in towns by the government, said West China's chairman, Zhang Jimin.
"The government wants to improve the people's living conditions. Premier Li Keqiang is pushing urbanisation in the country," Zhang said.
Another project is the Xian-Chengdu high-speed railway, which will consume 4.5 million tonnes of cement in Shaanxi, Tian said. Tendering and cement supply is expected to begin later this year.
West China supplies cement to several railway projects, including the Datong-Xian high-speed railway, he added. "Railway construction will be an important demand driver in 2013, especially in southern Shaanxi."
Despite robust demand for cement from infrastructure projects, West China will lower its production capacity target from 30 million tonnes to 28 million tonnes in 2015, Zhang said. "With the change in market conditions, we will slow down our capacity growth. What should take one year will be done in two or three years."
The company's cement production capacity surged 43 per cent to 23.7 million tonnes last year. "In the next two to three years, we want to improve our debt and cash flow."
The company aims to reduce its gross gearing ratio from 50 per cent to 20 per cent in 2016, Zhang said.
The net gearing ratio rose to 69.1 per cent at the end of last year from 65.7 per cent at the end of 2011, while its net debt grew 22 per cent to 3.35 billion yuan. The firm's net profit plunged 45 per cent to 364.9 million yuan last year. Turnover rose 10.5 per cent to 3.52 billion yuan in 2012.