Cement market in 2023: Regain consensus and stabilize the overall situation

Affected by the decline in demand, the cement industry experienced a very difficult year in 2022. In 2023, the favorable policies continue, but the demand for cement is still difficult to return to the courage of the year. How should the cement industry respond to stabilize the market situation?

Zheng Jianhui, chief analyst of China Cement Network Cement Big Data Research Institute, believes that based on the current market situation, cement companies should "regain consensus", so that the industry can be stable and have progress, and companies can compete in combination and seek common ground while reserving differences.

First, the current cement industry should have five points of consensus

1. The situation of overcapacity has become more severe

In 2022, cement capacity utilization reached a record low. According to statistics, the cement capacity utilization rate in 2022 is 61%, while the actual clinker capacity is enlarged, and overcapacity is more serious.

The cement industry to capacity has been promoted for many years, why the capacity is still increasing?

Zheng Jianhui believes that one is because of technological upgrading, the maximum output of a single line is increased; Second, because of capacity replacement, low-efficiency capacity revitalized; Three is because of the relocation of the same amount; Fourth, the new production line lacks subversive revolution.

2. The upward pressure on costs has increased unprecedentedly

Especially in terms of coal costs, from 2020 to the present, coal price volatility has increased. The price of coal/cement once exceeded 3; At the same time, a large number of coal mines have been closed after 2016, and it is difficult to return to the "cheap era" of coal prices in the future.

In addition, unit energy consumption and carbon emissions control requirements continue to increase, with the promotion of the "double carbon target", cement companies not only need to invest a lot of transformation funds, but also face the possible cost increase brought by carbon trading.

3. The marginal utility of supply-side reform is diminishing

Taking off-peak production as an example, starting from the north, it has roughly experienced the following stages: November 2014 Northeast peak production - January 2015 pan-North China peak production - 2016 Northern 15 provinces and cities peak production - 2017 to 2021 southern provinces to join, at the same time when the northern summer peak began - 2022, the industry further extended peak production time, The off-peak production time in 21 provinces exceeded 100 days.

In recent years, the peak production time continues to increase, the scope continues to expand, especially in 2022, the peak production time around the increase is obvious, the implementation is more powerful than before, but ultimately affected by the decline in demand, the stability of the peak production on the market is weakened. In the future, under the background of weakening demand, the role of supply-side reform may further decrease.

4. The demand plateau is facing the contraction of the market size

Since the founding of the People's Republic of China, the development of the domestic cement market can be roughly divided into five periods, and today's industry is about to enter the downward period.

Cement planned Economy period (1949~1977)

Features: ① The total amount is low: a total of 500 million tons of cement is consumed (17 million tons per year); ② Low per capita: less than 60 kg per capita per year; ③ The number of enterprises is from a small to a maximum, and the number of cement enterprises is about 3,400.

Small cement development period (1978~1995)

Urbanization rate: 18%~30%

Features: ① The total amount is rising rapidly: a total consumption of 3.58 billion tons (200 million tons per year); ② Per capita to reach the global average: per capita consumption of 400 kg; (3) The number of enterprises increased rapidly: at the end of 1995, the number of cement enterprises was 8435.

Rapid development period (1996~2014)

Urbanization rate: 30%~55%

Features: ① The total amount has increased significantly: a total of 23.8 billion tons of cement (annual average of 1.2 billion tons); ② More than 1.8 tons per capita; ③ The scale of enterprises from large to small, the number of enterprises from more to less: at the end of 2014, the number of cement enterprises 3539.

Demand Plateau (2014-2025)

Characteristics: ① The total amount of high range fluctuation: 2.2 billion tons fluctuated by 10%; ② Production capacity remains stable; (3) The competition pattern remains stable; The number of enterprises is relatively stable.

Down period: 2025~ Bottom (before 2060)

Characteristics: ① The plateau period is broken, and the cement demand is in a long downward period: the trough of cement demand is expected to occur before 2060; (2) Per capita demand falls back; ③ The number of enterprises has decreased.

5, reasonable profit is the premise of transformation and upgrading

Data show that in the second half of 2022, the cement industry sales profit margin of 5.4%, 0.3 percentage points lower than the industrial average, is the first time lower than the industrial average since 2016.

Zheng Jianhui believes that the reasonable profit rate of the cement industry should exceed the industrial average level, and it is better to maintain a fluctuation of 10%, and the reasonable profit of the industry should be 80 to 120 billion yuan. At present, the cement industry is in the stage of demand decline, should pay more attention to the quality of life, reasonable profit is the premise of transformation and upgrading.

Second, 2023 cement market outlook

1. Investment remains the main driving force for China's economic recovery

Zheng Jianhui believes that in 2023, with the release of the epidemic, China's economy will usher in a recovery. From the perspective of provinces, in 2022, no province has completed its GDP target. In 2023, all 31 provinces will increase their GDP targets by 1 (Shaanxi) ~9.3 (Hainan) percentage points compared with the GDP growth rate in 2022.

Based on the realization of economic growth in all provinces, it is predicted that: (1) China's economic growth rate will be 5.6% in 2023. (2) The contribution of Guangdong and Shanghai to the economy will increase, Guangdong (7%→9%), Shanghai (2%→4%).

In the process of achieving economic growth, investment remains the main driving force.

In recent years, the policy level has continuously promoted the investment of the whole society through government investment and policy incentives, accelerated the implementation of the "14th Five-Year Plan" major projects, and strengthened inter-regional infrastructure connectivity. At the same time, the amount of special bonds issued in advance increased: In November 2022, the Ministry of Finance issued 2.19 trillion yuan of new special bonds in 2023 in advance, an increase of 50% compared with 1.46 trillion yuan issued in advance at the end of 2021. The "Government Work Report" also pointed out that the new local special debt is planned to be 3.8 trillion yuan in 2023, a slight increase over the 3.65 trillion yuan planned for 2022.

2. The fluctuation of cement demand narrowed throughout the year: the weak recovery of real estate infrastructure is in advance

In terms of real estate, under the influence of the policy of ensuring the completion and delivery of buildings, the real estate industry has gradually completed the bottom, but is dragged down by land acquisition and new construction, and the probability of real estate investment continues to grow negatively, and the trend is low before and high after.

In terms of infrastructure, the China Cement Network construction project database shows that in 2022, the national construction project winning amount increased by 27% year-on-year. In 2023, infrastructure will obviously form a physical quantity, and the trend will be high and low.

Based on real estate and infrastructure investment trends, Cheng proposed two neutral and optimistic assumptions for cement demand in 2023. Neutral scenario: the decline in cement demand Narrows to less than 3%; Optimistic assumption: policy intervention beyond expectations, demand is stable or slightly positive;

3. Delayed ignition projects or concentrated production in the southern region exceeded 38 million tons

Affected by market trends in 2022, some domestic production lines choose to postpone production, and in 2023, with the large number of new lines put into production, domestic cement overcapacity pressure or further increase.

Zheng Jianhui expects that the country's new ignition clinker production capacity is expected to be 47 million tons in 2023, of which: more than 80% are located in the southern region; Southwest China (35%); East China (25%); Central and Southern China (24%); Yunnan, Anhui, Guizhou, Hunan ignition production lines are expected to be more than 3.

4, it is expected that cement prices in the fourth quarter are expected to turn positive

Zheng Jianhui believes that it takes time for investment to land, the project is slow to start, and the impact of the real estate industry, the demand for cement in the beginning of the year is sluggish, and the price of cement in the first quarter fell sharply compared with the same period last year. Starting from the second quarter, with the increase of project construction, cement demand is picking up, and the year-on-year decline in cement prices is expected to gradually narrow; In addition, it is expected that domestic cement prices in the fourth quarter are expected to turn positive. For the full year, average prices are likely to be below 2022 levels.

5, cement ton cost is expected to fall back industry-wide profits are expected to improve

Rising costs are an important reason for the sharp decline in cement industry profits in 2022, and the cost problem is expected to improve in 2023.

Zheng Jianhui said that in 2021-2022, the cost of cement tons rose by 60 yuan/ton, an average increase of more than 30%, and the cost increase far exceeded the price increase, resulting in a decline in gross profit.

In 2023, the cost is expected to decline: (1) The impact of fuel price fluctuations on cost fluctuations is weakened, and fuel prices are also expected to decline slightly in a stable way; (2) The use of alternative raw materials/alternative fuels has further increased, and the proportion of cement kiln collaborative disposal lines has increased to more than 25%. (3) Profit reduction Enterprises reduce expenses to reduce costs.

In the second half of the year, the first half of the year: in the first quarter, the cost of cement is still rising (coal prices are still high at the beginning of the year), the price is falling, and the profit is shrinking. Prices recovered in the second quarter, and the decline in profits gradually narrowed. The second half of the year: With the further improvement of cement demand, pushing up prices, the industry profit is expected to improve significantly year-on-year.

Finally, Zheng Jianhui believes that collaborative self-discipline is the premise of maintaining industry benefits, and whether industry profits can return to a reasonable range depends on industry consensus. In order to further promote the green, digital and intelligent development of the cement industry, China Cement Network will hold the "China Cement Industry Green Development Summit Forum and ultra-clean Emission Technology Exchange Conference" and the "Fourth China Cement Intelligence Summit Forum" in Changsha, Hunan Province on April 24-25, 2023. We sincerely invite industry experts, cement and related enterprises. Work together to help cement industry high-quality development! After the meeting, we will visit SinOMA Zhuzhou Cement Co., Ltd. and the first international set of "Dust and Nitrate one-box SCR Denitration Project".