The double-digit days of China’s growth have long gone. It is all about overcapacity and environmental issues and the government’s determination to reduce pollution across the major industries. This article considers these issues and includes news of recent acquisitions and JVs, comments on China’s political impasse with Taiwan and Japan’s recovery after suffering its largest earthquake, in addition to revealing some optimism in South Korea.
China: clearing the air
Statements issued in January 2014 by two government organisations gave slightly different figures for China’s cement production in 2013. The National Bureau of Statistics, as reported in the press, said the full year figure was 2.41 billion t, an increase of 9.6% y/y, compared with the National Development Reform Commission’s figures of 2.2 billion t and 9.2% y/y. So far this year, cement prices and inventories are reported to be stable. There is, however, general agreement about the government’s programme to reduce pollution, which has already seen many closures of older plants. A new report entitled Blue Sky Roadmap, compiled by a number of Chinese organisations and universities involved in environmental issues, claims that in provinces such as Shandong and Hebei, emissions from many large-scale enterprises seriously exceed standards. The report has collected the data available to date and concluded that some 65% of the country’s industrial emissions come from the thermal power, steel, cement, refining, petroleum and petrochemical industries. Within that list, particulate matter discharged by the cement industry is responsible for 15 – 20% of the country’s total particulate emissions. It is also said that nitrogen oxide and sulfur dioxide emissions from the cement sector account for 8 – 10% and 3 – 4%, respectively, of China’s total output for each of the emissions. In January, The International Business Times reported that, effective from 1 March, Beijing will no longer approve proposals for the construction of new industrial plants, including oil refining, steel, cement and thermal power plants. It also plans to close 370 million t of outdated capacity by 2015.
On the question of overcapacity, China’s Ministry of Industry and Information Technology is reported to be considering establishing an investment fund to encourage businesses with surplus production capacity to move that capacity overseas. China’s State Council is said to be targeting the steel, cement, aluminium, plate glass and shipping sectors, each of which are experiencing capacity surplus. If this is a goer, any relocation of assets would be determined by the businesses themselves and not state-driven. How popular this will be remains to be seen.
‘Shopping’ in Germany
In 2006, the then President of the China Cement Association, Lei Qianzhi, in an interview with World Cement, predicted that Chinese companies would soon be looking to acquire European cement and concrete equipment suppliers and possibly cement manufacturers. Seven years later, his prediction was realised when two German concrete pump manufacturers, Putzmeister and Schwing, were bought by the Chinese companies, Sany Heavy Industry Co. Ltd and XCMG Construction Machinery Co. Ltd, respectively. In March 2013, China National Materials (Sinoma) set aside 500 million yuan to acquire mostly foreign cement equipment companies, including German ones. No surprise then when Sinoma International announced plans to acquire Hazemag & EPR through a share purchase agreement. This was quickly followed by the acquisition of KHD Humboldt Wedag by AVIC International Beijing, part of the Aviation Industry Corp. of China, in December 2013. Earlier in the month, Zoomion Heavy Industry Science & Technology purchased the dry mortar equipment producer M-Tec.
Outreach gains momentum
Sinoma continues to explore opportunities elsewhere, especially in Africa, the Middle East, India and Southeast Asia. In April 2013, the group entered the Indian market by purchasing a majority stake in LNV Technology Pvt Ltd. The most recent developments are agreements with the Kar Group to build a 6000 tpd cement plant in Iraq, and with Dangote Cement to construct 2 x 6000 tpd kiln lines in Nigeria.
Other Chinese companies building up their international portfolios include CITIC and China Triumph International Engineering Group Co. (CTIEC). CITIC is working in Myanmar with a unit of the Siam Cement Group, Mawlamyine Cement Ltd, on a 5000 tpd production facility. At the same time CTIEC has signed an engineering, procurement and construction (EPC) contract with STG Engineering and Real Estate Development Company for the construction of a 4200 tpd plant that will be located at Adrar in Algeria. The plant will also be capable of producing 200 000 tpa of oilwell cement.
Acquisitions are also on the agenda at Anhui Conch, China’s largest cement producer. It plans to boost its capacity by about 30 million tpa through new acquisitions and investments. This is the company’s reaction to the government’s efforts to shake up the industry, close some of the most heavily polluting plants, and the recently introduced regulations regarding emissions and air pollution, as well as limiting the construction of new plants. Anhui Conch has a domestic capacity of over 200 million t and is looking to acquire 10 million t of combined capacity in Vietnam, Indonesia and Myanmar in the next three to five years. In January, the Chinese major signed a strategic partnership agreement with Taiwan’s Asia Cement to explore overseas markets and share expertise in eco-friendly technologies. At a press conference after the signing ceremony, Guo Wenan, the Chairman of Anhui Conch said, “We do not have much global experience and will learn from Asia Cement”. This was a reference to Asia Cement’s global sales network in other Asian regions as well as in the United States, Africa and the Middle East. The two companies will look at the possibility for Anhui Conch to enter the Taiwan market and jointly invest in property projects using Anhui Conch’s land reserves in over 200 sites on the mainland and leverage the department store business of the Far Eastern Group, Asia Cement’s parent company. Anhui Conch is optimistic that cement demand on the mainland could improve this year if the construction of transport infrastructure projects, including new roads and subways, which were approved in 2012, begins.
On the domestic scene, in January 2014, the China 20MCC Construction Group announced that it had completed all the construction work on the no. 1 kiln at Shaanxi Fuping. The company claims that this new facility will be one of the largest domestic production lines in terms of daily output. Production capacity for clinker will be 9000 tpd. According to local reports, cement demand in Macau will reach new highs over the next two years. This is due to the construction of new resorts. The Macau Ready-Mix Concrete Association is expecting annual concrete production to exceed 2 million m3 in both this year and in 2015.
As part of its efforts to improve energy conservation and promote environmental protection solutions, West China Cement has completed phase 1 of its cement kiln waste sludge treatment facility in Lantien. This is the first such facility to open in the Shaanxi province in the northwest of China. When phase 2 is completed, it will have the capacity to treat 210 000 tpa of industrial and municipal waste sludge. It is expected to generate approximately RMB100 million of profit per year when operating at full capacity.
Planes and trains
In a previous issue of World Cement (March 2013) it was mentioned that China’s Finance Ministry would be investing 50 billion yuan on road upgrades and rural road construction. World Cement also reported that the National Development and Reform Commission (NDRC) had given the go-ahead for 60 infrastructure projects worth about US$157 billion, to be spread over several years.
At the beginning of this year, the Centre for Aviation Airports Data (CAPA) announced that there is almost US$45 billion of investment in airports on a rolling basis with the Chinese Civil Aviation Administration (CAAC) investing at least US$100 million for the construction of 69 regional airports by 2015. Most of these will be located in Xinjiang, Inner Mongolia, Tibet, Yunnan and Heilongjiang. One of the country’s largest airport projects will be the second Beijing Airport at Daxing. This will account for some US$11 billion of China’s total expenditure on airport facilities. Demolition began last year with completion scheduled some time in 2018. The new Beijing Airport will have eight runways and, initially, the capacity to handle 40 million passengers, increasing to 70 million by 2025 and eventually to 200 million.
Not to be outdone on transport, the Chinese Railway Corporation (CRC) plans to allocate US$104.2 billion for investment in fixed assets this year, with new railway construction estimated to be over 6600 km. Construction will focus on Central and West China with 44 new projects being launched this year. CRC expects to deliver 2.27 billion passengers during 2014 and ship 3.28 billion t of goods. Two of the projects include the Beijing-Shenyang high speed rail and the Beijing-Zhangjiakou railway.
Read part two of Far East Memorandum here.
Written by Paul Maxwell-Cook. This is an abridged version of the full article, which appeared in the March 2014 issue of World Cement. Subscribers can view the full article by logging in.
Read the article online at: https://www.worldcement.com/asia-pacific-rim/03032014/far_east_memorandum_china_803/