The future of Chinese cement production

Cement demand in China is dropping, and is expected to fall below 2 billion tpy in 3 years. With the fast-paced development of China’s economy since its reforms and subsequent ‘opening-up’, the cement industry ushered in an unprecedented period of vigorous development. In 2014 national cement production levels reached a historic high of nearly 2.5 billion tpy. After this, China’s cement production entered a high plateau period. The country has now completed world-class infrastructure projects and has built out many of its largest cities. It is inevitable that cement consumption will decrease steadily over many years to a steady state level. Cement output dropped 10.5% to about 2.13 billion tpy in 2022. The ongoing rate of decline might be even higher.

Even as the Chinese economy begins to recover in 2023, with the easing of its Covid-19 lockdowns, demand for cement is expected to decline slightly.

This is mainly due to the struggling real estate industry and the smaller number of new infrastructure projects. It is expected that from 2024 to 2025, infrastructure requirements will continue to drop and China’s cement demand will fall further. It is predicted to fall below 2 billion tpy in 2025.

Profits will moderate. The era of high profit is over

From 2018 to 2021, which is often referred to as the ‘golden era’ for the cement industry in China, average profit was 16 – 19% of turnover. This is not sustainable due to serious overcapacity.

In 2022, the cement industry’s profit was roughly halved, falling to rates of approximately 7.3% mainly due to shrinking demand, falling prices and high costs. Nevertheless, this figure is still 1.3% higher than the overall profit rate of all industries. With the impact of weak demand, high coal prices, and severe overcapacity, looking ahead, the outlook is for modest profitability and the industry will follow the general business trend of seeking a relatively stable and reasonable profit rate.

The industry concentration rate will increase and competition patterns will optimise

Since the establishment of the 13th Five-Year Plan, leading cement enterprises have made a series of mergers and reorganisations. The reorganisation of large companies has rapidly increased the industry concentration. By the end of 2022, China’s largest ten cement enterprises represented 60% of the nation’s overall clinker capacity. Of course, there is still a big gap compared with the developed countries in Europe and the US.

At present, there are more than 2900 registered cement companies in China, belonging to hundreds of independent groups demonstrating that while market competition is fierce, the concentration rate still needs to be increased to reach a stable competitive situation. Given the development trends within the industry, a large number of small and medium-sized cement companies will drop out of the market. It is expected that China’s leading enterprises will accelerate mergers, acquisitions, and reorganisation, thus further elevating the concentration of the industry. As a result, it is expected that the competition pattern will stabilise.

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