Finance Association, May 30 (Reporter Zhang Liangde) The mandatory national standard for GB 175-2023 “General Silicate Cement” (“New National Standard for Cement”) led by the Ministry of Industry and Information Technology was officially implemented on June 1. The new national standard not only puts forward stricter and more detailed requirements for the strength, fineness and composition of cement, but also regulates the types of mixtures used, and cement production standards have been raised again.

The Financial Services Association reporter learned from industry experts and cement industry practitioners that due to an increase in the ratio of clinker, the adjustment of the new national standard is expected to cause the production costs of most cement companies to rise, which is expected to rise by 10 to 20 yuan/ton. Recently, manufacturers have begun to produce the new national standard products, and cement prices in various parts of the country have also generally risen in stages.

In the long run, due to the declining trend in demand for cement in recent years, the release of the new national standard has made some small and medium-sized grinding station operators worry that the reshuffle of the industry will intensify. Some heads of asset management business departments of leading domestic cement companies told the Financial Federation reporter: “There are basically no companies considering building new or mergers and acquisitions of grinding stations now.”

Costs have risen slightly, cement prices have generally risen, and the industry has begun to make profits

Affected by the imminent implementation of the new national standard, cement prices in many places have shown a general upward trend recently. Some companies in the Yangtze River Delta have announced an increase in cement prices by 20 yuan to 50 yuan/ton, and cement companies in Northeast China are also planning to raise prices by 50 yuan/ton. The cumulative increase in cement prices in the region may reach 110 yuan/ton. Cement prices in Henan, Anhui, Xinjiang and other regions are also showing an upward trend.

A cement factory in Hebei (Image source: Financial Services Association reporter)

Some companies have made it clear that this price increase is mainly due to the cost increase caused by the new national standard. Qilianshan Cement said in its price increase notice that due to the official implementation of the new cement standard GB175-2023 from June 1, 2024, cement costs have risen. Considering the current market demand and inventory situation, the company's research and decision will increase the price of various types of cement by 30 yuan/ton starting at 00:00 on May 25, 2024.

Wang Chenghe, a cement firing process engineer, told the Financial Federation reporter that the new national standard mainly restricts the use of ultrafine industrial waste powder such as steel slag and manganese slag, increasing the proportion of cement clinker used. Some regions with advantages in the steel industry should pay attention to the disposal of new steel slag solid waste. Compared with previous revisions to the national standard, the increase in the new national standard indicators this time is not as big as the previous few.

A person from Jidong Cement (000401.SZ) told the Finance Association reporter: “After the implementation of the new national standard for cement, the cost will definitely increase slightly. The company's production lines are making adjustments related to environmental protection and technical reform, and the amount of clinker added will increase. Under the influence of the new national standard, the current market price has probably increased by about 30-50 yuan, depending on the specific implementation situation.”

Jiang Yuanlin, a senior analyst at Centennial Construction Network, told the Financial Federation reporter: “According to our recent research, 70% of companies said that implementing the new national standard will increase the utilization rate of cement clinker, and at the same time, cement production costs will also increase by 10-20 yuan/ton.”

A person from Fujian Cement (600802.SH) told the Financial Federation reporter: “Originally, we all exceeded national standards. We have already met a high standard requirement ourselves, so now our costs will not be adjusted much, and the impact on costs will not be significant after the introduction of the new national standard. The theory is that it will drive prices, but it depends on whether the market can accept it.”

Chen Bailin, president of Digital Cement Network, told the Financial Federation that the new national standard is about to be implemented. Apart from some companies planning ahead of schedule to cope with rising costs, the main reason for this price increase is the restorative rise caused by cement prices being too low before.

Judging from the performance of listed companies in the first quarter, the profitability of the entire industry declined sharply year over year. Industry leader Hailuo Cement (600585.SH) achieved revenue of 21.328 billion yuan in the first quarter of this year, a year-on-year decrease of 32%, and net profit to mother of 1,502 billion yuan, a year-on-year decrease of 41%. The main reason for the decline was the year-on-year decline in sales volume and price of the company's cement business products.

“It is expected that after the price increase driven by the implementation of the new national standard is implemented, the cement industry's profit will change from negative to positive.” Jiang Yuanlin said.

Long-term overcapacity in the industry may be reshuffled

The industry generally believes that the implementation of the new national standard may become a key factor in speeding up the reshuffle of the industry. Since the new national standard imposes mandatory requirements on components, it is expected that small and medium-sized enterprises with poor cost control capabilities and independent grinding stations will face greater challenges, which may accelerate their withdrawal from the market and further enhance the market position of leading companies.

A grinding station in Hebei (Image source: Financial Services Association reporter)

Li Chao, head of small and medium-sized cement grinding stations in Hebei, told the Financial Federation reporter: “Due to the increase in the use of clinker, and clinker is produced by large factories, if upstream takes the opportunity to increase prices, the cost of downstream grinding stations will increase dramatically.”

An industry insider told the Financial Federation reporter that in 2023, the market concentration of the top ten domestic cement clinker manufacturers was about 63%, and this ratio may rise to more than 80% in the future. According to statistics from the Cement People Network, many cement companies achieved year-on-year growth in market share in 2023. Among them, Hailuo Cement, China Resources Building Materials Technology (01313.HK), Western Cement (02233.HK), Shangfeng Cement (000672.SZ), and Tapai Group (002233.SZ) achieved year-on-year increases in share for two consecutive years.

In fact, in various regions, the concentration of cement clinker is higher. Li Chao said that the transportation radius of cement is generally around 200 kilometers. If it exceeds this range, the freight costs will be difficult to bear. However, within this range, there may be only one or two cement clinker manufacturers. As market demand weakens, the competitiveness of small and medium-sized grinding plants may decrease in the future.

Li Chao said, “Currently, our operating rate is only about one-third, and we still start construction at night when electricity prices are low. If you use affordable or peak electricity prices, it's basically a loss.”

The operating rate of the cement industry has continued to decline in recent years. According to some data, domestic cement production began to decline continuously after 2014, falling from nearly 2.5 billion tons to around 2 billion tons in 2023. Referring to the historical experience of developed countries and regions such as Japan and Europe, China's cement production may continue to decline year by year for a long time in the future.

Wang Chenghe said that according to internationally accepted rules, the per capita annual cement consumption in developed countries is around 0.4 to 0.6 tons, and our country still has a lot of room for decline.

A person from a listed cement company said, “Overcapacity itself is a common phenomenon in the cement industry in recent years. In fact, overcapacity is not scary. There was also overcapacity a few years ago, but at that time, the efficiency level of the entire industry was very good. In recent years, the country's control of new production capacity, erroneous production in the industry, volume reduction and replacement requirements, as well as energy consumption and EIA emission targets, have played a good role in the industry. This year, mainly, there has been a decline on the demand side, which has led to a decline in the current profit level of the entire industry.”

In the long run, competition in the domestic cement industry is becoming more and more intense, and competition in terms of cost and refinement of operations will become the main focus of the cement industry's development for a long time in the future.

For small and medium-sized grinding plants, strict implementation of the new national standard will lead to rising costs and continued decline in market competitiveness. Although the new national standard allows the continuation of contracts for customizing product technical indicators, Wang Chenghe believes that this sales method not only accounts for relatively small but also has certain hidden dangers. “Some contracts can continue to be reached by both parties to achieve technical conditions and carry out production according to contract requirements separately, but if they fail to meet national standards, they will still be judged according to the national standard.”

People from the Jidong Cement Company believe that the implementation of the new national standard may eliminate some small and medium-sized enterprises that do not meet the standards and eliminate some of the inefficient production capacity.

Not only is production capacity falling short of the standards, Li Chao told the Finance Association reporter that cement grinding stations that received new approval this year have yet to open. The main thing is that the current profitability of the cement industry is poor, and companies are worried that the costs cannot be covered after opening, and there is no enthusiasm.

For large cement companies, cost control is also a top priority. From the perspective of cement costs, coal and electricity account for more than 50% of cement production costs, raw material costs account for about 30%, and electricity costs account for 20%.

A person from Shangfeng Cement Company said, “The company's ability to control costs has always been its core competitiveness. It also uses methods to reduce coal consumption and generate photovoltaics in daily operations to achieve the goals of cost control, cost reduction and efficiency. Product quality will be more guaranteed after the introduction of the new national standard, and costs for small and medium-sized enterprises may increase. Overall, it is beneficial to the future development of the industry.”

(Li Chao is a pseudonym)