Cement market maintains volatile adjustment trend

In 2023, cement enterprises were affected by multiple factors such as intensified market competition, high costs of upstream raw fuels, downturn in downstream real estate, and enhanced environmental and energy consumption constraints. Cement prices fluctuated at the bottom, and industry profits shrank.

Looking ahead to 2024, the cement industry still faces numerous difficulties. It is expected that annual demand will continue to decline compared with 2023, and market prices will continue to maintain a volatile adjustment trend.

Main indicators weaken

Since 2023, China's macroeconomy has continued to recover and improve, and infrastructure investment has maintained steady growth. However, the real estate industry is still in a deep adjustment stage, causing the total cement demand to remain on a downward trend, generally manifested as insufficient demand, weakened expectations, and weakened characteristics of peak and off seasons.

According to statistics from the National Bureau of Statistics, from January to November 2023, China's cumulative cement output was 1.867 billion tons, a year-on-year decrease of 0.9% (on a comparable basis), narrowing by 9.9 percentage points from the same period last year, and the output was the lowest level for the same period since 2011.

In 2023, domestic cement market prices generally showed a trend of high before low with volatile adjustment. According to statistics from Digital Cement Network of China Cement Association, the average transaction price of 42.5-grade cement in the national cement market in 2023 was 394 yuan/ton, a sharp year-on-year drop of 15%, the lowest level in nearly six years.

Chen Bolin, president of Digital Cement Network, analyzed that the main reasons for the weak volatile adjustment of cement prices at low levels in 2023 were: market demand continued to be sluggish, leading to persistently weak cement demand and high inventory; enterprise sales strategies constantly switched between competition and coopetition. "Especially in the second half of 2023, enterprises in various regions did not want to lose market share, and price competition was fierce. However, because prices were too low and led to losses, enterprises also used measures such as staggered production to promote phased small repairs and increases in prices. In the switching process, competition outweighed coopetition, making the bottom volatile adjustment of cement prices the main theme."

Lower prices have led to meager profits in the cement industry. The China Cement Association estimates that the total profit of the cement industry in 2023 will be about 32 billion yuan, a year-on-year decrease of about 50%.

Scientific and technological innovation leads

Facing the current situation, in 2024 the cement industry must continue to adhere to the main line of supply-side structural reform, actively study and explore industrial policies for the exit of excess capacity, further improve industry concentration, and achieve green, low-carbon, and high-quality development.

"Energy efficiency and new energy application, environmental protection and collaborative disposal, promotion of digital and intelligent technologies, carbon emission reduction, carbon neutrality and carbon trading, and research and application of cement-based materials are the five key areas of scientific and technological innovation for the current cement industry to promote high-quality development," proposed Kong Xiangzhong, executive president of the China Cement Association. Around these priorities, a large amount of independent innovation and original innovation should be carried out in advanced production processes and equipment, ultra-low emission capacity and comprehensive resource utilization levels, improvement of enterprise operational efficiency and group structural efficiency, research and development of "dual carbon" technologies and green factory construction, and research and development of new varieties, high quality, and new materials.

Li Chen, deputy secretary-general of the China Cement Association and director of the Policy Research Center, believes that digital intelligence technology and green low-carbon technology are the inevitable path for the cement industry to transform and upgrade toward high-quality development.

At present, in terms of digital intelligence technology, a number of smart factories and 5G factories have emerged in the cement industry, and industrial internet scenarios suitable for the cement industry, unmanned mines, and smart port construction models are also being continuously explored.

"In the future, the space and prospects for the application of digital intelligence technology in the cement industry are unlimited. Efforts should be made in broadening scenarios and input-output ratios to better promote the transformation and upgrading of traditional industries," said Li Chen. In terms of research and promotion of green low-carbon technologies, dozens of factories in the cement industry enter the world-leading level in energy efficiency every year, and enterprises selected as *** green factories and green mines are also at an advanced level measured by international standards. Under the severe situation of continuously declining benefits, the cement industry has applied new energy technologies such as wind power, integrated photovoltaic power generation and storage, and biomass energy, and carried out projects such as environmental collaborative disposal and raw fuel substitution, which not only achieved green low-carbon development with ecological benefits but also obtained good investment returns.

Continuously resolving excess capacity

"In 2024, the downward pull of the real estate industry on cement demand will still exist, but it will be significantly weaker than in 2022 and 2023." Chen Bolin believes that infrastructure investment will still be an important means of supporting the economy this year. "Although infrastructure construction maintains a steady and increasing development trend, it is expected that the total cement demand in 2024 will still decline slightly compared with 2023, with a decrease of 2% to 3%. From the perspective of price and efficiency, 2024 will still be a difficult year for the cement industry."

Cement is a typical industry with excess capacity. In particular, the industry's loss scope expanded in 2023. Excess capacity superimposed on insufficient demand made the contradiction more prominent and the industry situation more severe. "Facing the severe situation of excess capacity, the whole industry needs to enhance confidence and courage. There are always more solutions than difficulties," Li Chen believes. At present, the favorable conditions facing the cement industry are stronger than the unfavorable factors, and confidence and courage should be enhanced.

The confidence and courage of the cement industry first come from national policy support. As early as 2013, the State Council issued the "Guiding Opinions of the State Council on Resolving the Serious Contradiction of Excess Capacity" (Guo Fa [2013] No. 41), and the Ministry of Industry and Information Technology and other departments successively issued a series of supporting policies such as staggered production. This Central Economic Work Conference once again emphasized the issue of excess capacity, and resolving excess capacity will receive a new round of policy support from relevant national departments.

Second, cement is still rigid demand. The basic trend of China's economic recovery and long-term improvement has not changed. Accelerating the construction of affordable housing, "dual-use for normal and emergency" public infrastructure, and urban village transformation, the "three major projects," are the backbone of cement demand. The ultra-large-scale market will still guarantee huge cement demand, and the total demand will still be considerable.

In addition, the cement industry has a consensus that "industry interests are higher than enterprise interests, and enterprise interests are nurtured within industry interests," forming a staggered production industry self-discipline model, constantly adjusting to adapt to changes in downstream demand and maintaining dynamic balance between supply and demand. Although staggered production cannot fundamentally eliminate capacity, it can alleviate the contradiction of excess capacity, accumulate capital for enterprises, and ultimately achieve the exit of excess capacity and transformation and upgrading.

Li Chen said that the increasingly strict "five rulers" regulatory standards of energy conservation, environmental protection, safety, quality, and technology policies in the current cement industry are playing an increasingly large role. "Binding policies such as energy conservation and carbon reduction and ultra-low emission transformation requirements are strong and powerful, and local governments have also issued a series of guiding policy documents to promote high-quality development of the industry. The feasibility and conditions for resolving excess capacity through 'policy + market' are gradually maturing. The leading and coordinating roles of large enterprises and industry associations in resolving excess capacity will become more prominent."