China’s cement industry in a state of strong flux

1   Introduction
The November 2008 figures in China did not bode well for the cement industry. Compared to the preceding year, the accumulated cement output had only risen by 2.8 %. For some other countries this would have been a good result, but China’s cement industry had become used to two-digit growth rates. The fact that the December figures pushed the total for the year up to 5.2 % will have alleviated the disappointment somewhat, but a portion of the growth will merely increase the stock on hand. A more serious portent is that the first signs of demand saturation have appeared in those regions that have hitherto shown the highest per capita cement consumption figures. The shutting-down of shaft kiln plants had no effect on the supply of cement, because the construction of modern rotary kiln plants with preheater and calciner simultaneously boomed, so that a distinct production capacity surplus has already occurred in some regions. It is conspicuous that a strong concentration process is currently taking place in the Chinese cement industry. The ranking of TOP companies is therefore also in a state of upheaval.

2    Cement output, exports and regional development
According to official NDRC (National Development Reform Commission) statistics for 2008, 1388 Mta (million tonnes per year) of cement were produced in China. This means that cement output only rose by 68 Mta or 5.15  % compared to the preceding year (Fig. 1). In fact, the increase in production figures has been falling off since 2006 and if this trend continues, negative growth must be expected for 2009. For one thing, 2008 was an extraordinary year in China with numerous natural catastrophies and adverse weather periods and for another, cement exports are showing a significant decline (Fig. 2). After a peak of 19.4 Mta in 2006, only 13.2 Mta were exported in 2008, which is a consequence of the reduced import rates of the USA and Spain. These export deficits could only be partly compensated by sales in Africa and the Middle East and no increase in export rates to Central Asia was achieved. Clinker exports show a similar picture; export rates fell from 16.7 Mta in 2006 to 12.8 Mta in 2008.
 
The per capita consumption figures vary greatly from one region of China to another. As illustrated by Figure 3, the highly-developed region of East China, whose population of about 375 million is the highest of all regions, achieves the highest per-capita consumption of approx. 1500 kg, while the per ­capita cement consumption of the South-West region amounts to a mere 675 kg. The Northern region with the capital city ­Beijing has the second-highest per-capita consumption, followed by the Central South China region. The entire Western region of China, whose population is just 270 million or 21 % of the national population, shows a low per-capita consumption of only 14  % of the total cement consumption. Figure 4 shows the provinces with the highest and lowest growths in cement consumption in 2008. With few exceptions, the largest growth reductions were registered in those provinces which have up to now achieved the highest per capita cement consumption figures. In the Northern region Beijing, Shanxi and Hebei are among the losers, while in the Eastern region Shandong, ­Zheijiang and Shanghai are affected. Among the biggest winners are Ningxia, Inner Mongolia, Guangxi and Shaanxi, as well as the three provinces of Hubei, Anhui and Henan, which were already among the TOP 10 provinces in China.
 
While for the NDCR in 2009 cement demand growth of 6.3  % in China seems to be possible, the medium-term cement market development, forecasts differ widely. In 2008 a downward trend had become apparent on the real estate market even before the global banking and financial crisis, and prices in some areas fell dramatically. For example, in both Beijing and Shanghai the dwelling space sold decreased by over 50  % compared to the preceding year, despite considerable new construction measures. In Beijing, the number of housing units already completed covers the projected need for at least the next three years. The Chinese government is now attempting to stimulate the construction industry with infrastructure and housing projects costing 4 billion Yuan (approx. US$ 570 billion). Announcement of these measures boosted the share prices of the most important Chinese cement producers. It is presumed that in the next two years just the planned extension of motorway and railway networks, together with the necessary tunnels and bridges from this investment package will result in additional cement sales of approx. 120 Mta per year
 
However, it is uncertain whether the investment packages will already make themselves felt during the new construction period commencing in March, and it is also unclear how the investments will develop as a driving force for the cement market, particularly alongside the state aid programmes for the housing market. As the housing construction sector does not promise any fundamental improvement, OneStone anticipates a subdued growth in the cement market of 2.6  % in 2009 and 2.2  % in 2010. As from 2010, it is expected that negative market growth will occur and that the negative trend seen in 2008 will resume, resulting in a declining per capita cement consumption in China.
 
3    Investment boom in new systems and
a change in kiln technology
The proportion of cement produced in new, modern ­clinker production lines equipped with preheaters and calciners
(NSP = New Suspension Preheater) has risen to 63  % (Fig. 5). In 2008, the amount of cement produced from clinker manufactured by NSP systems was 878 Mta, while 510 Mta came from clinker manufactured by outdated shaft and wet-process rotary kiln plants. Three factors contributed to the disproportionately high decline of outdated systems:
    1.    the shutdown of obsolete plants with a total capacity of
60 Mta,
    2.    the only moderate rise in cement prices and
    3.    the greatly increased prices for coal and other raw materials, which made old plants even more uneconomical compared to modern kiln plants, due to their poor efficiencies and low output rates.
 
According to the 11th five-year plan, a total of 250 Mta of obsolete kiln and grinding systems are to be shut down by 2010. Complete shaft kiln plants have already been taken out of service in Zheijiang, Beijing and Shanghai. By 2010 further provinces and e. g. the entire Pearl River Delta region should follow.
 
Already in 2009 – one year earlier than planned – it is expected that the NSP share in the cement output figure will reach 70  %. In 2008 alone, 120 new NSP lines with a clinker production capacity of 143 Mta and a new cement production capacity of 200 Mta were put into operation (Fig. 6). The NSP cement production capacity rose to 980 Mta, while the capacity of obsolete systems fell to 610 Mta, which resulted in an overall cement system capacity of 1590 Mta. With the depicted cement output rates of NSP systems, their capacity utilization is 90.0  %, while that of the obsolete systems is 83.5  %. It is expected that a further 50 Mta of capacity will be shut down in 2009 and that 140 Mta of new capacity will be added. In 2009 there will thus be about 1010 NSP lines with a clinker production capacity of 850 Mta and a cement production capacity of 1140 Mta. The provinces with the largest amounts of obsolete cement production capacity are Sichuan, Hunan and Guizhou. The greatest capacity shutdowns will be made in the provinces of Shandong, Guangdong and Hebei.
 
The announcement that obsolete capacity would be shut down triggered a real investment boom among Chinese cement producers. In 2008, investments on the cement sector amounted to 105.1 billion Yuan (US$ 15.3 billion), which represented an increase of almost 61 % over the investment of 65.4 billion Yuan in 2007. This must be seen against the background that the NDRC had already warned against an excessive expansion of cement production capacity in 2003, prior to the biggest boom year so far in 2004 with investments amounting to
43.3 billion Yuan [1]. Of the regions, the biggest investment of 34 billion Yuan is being made by Central South China, followed by East China (21.5) and South West China (20.3). The provinces making the biggest investments are Sichuan (9.0), Henan (8.6), Hunan (7.3) and Guangxi (7.2). Guangxi is rich in limestone deposits and an example for the riverborne transportation of a portion of the produced cement (Xijiang River) to the important markets (e.g. Guandong).
 
While most small and medium-sized cement companies operate kiln capacities of 2000 and 2500 tonnes per day (t/d), the larger cement producers are showing a clear trend towards 4500 and 5000 t/d lines. Typical planning figures presume that at a kiln capacity of 4500 t/d and 330 operating days the clinker output will be 1.5 Mta and the maximum cement output will be
2.2 Mta (clinker factor 0.68). In China, such a cement production line costs about 600 million Yuan (90 million US$) or approx.
US$ 40/t. The aforementioned investments of 105.1 billion Yuan were, however, not only intended for new cement production capacity. A not inconsiderable amount went into increasing the amount of WHR-generated electricity and into the utilization of alternative fuels and the use of slag and fly ash for composite cements. Moreover, the amount invested in taking over cement companies and in upgrading system technology is not known.
 
4    Consolidation of cement producers
At present there are still about 5000 cement factories in China. The 11th five-year plan of the NDRC states that this figure will be cut to 2000. The number of cement producers is still around 5000, of whom 90  % are operating a production capacity of less than 0.6 Mta. Most of these companies will no longer exist in 2010, having either been closed down or taken over by the TOP cement companies. In the course of 2008 a large number of takeovers occurred, showing just how dramatically the cement producer scene can be expected to change. Even the TOP 12 cement companies, who have been given the status of National Champions by the NDRC, are affected by takeovers. The first of these to be taken over was Zhejiang Leomax, in which the CNBM Group acquired a majority shareholding in 2007. In addition, Xinjiang Tianshan was purchased by Sinoma Cement.

Table 1 presents an overview of the current TOP 12 companies with a ranking for the year 2007. If all the planned capacity expansion projects of the TOP 12 are implemented, their capacity would increase from approx. 500 Mta in 2008 (31 % of total capacity) to approx. 870 Mta (48  % of total capacity) in 2010. The ranking of 2007 will certainly change drastically in the coming years. In 2008, Anhui Conch had already lost its leading position to the CNBM Group, which is undertaking a very ambitious acquisition and expansion course. Alone in the first half of 2008, they purchased 17 other companies. However, this enormously increased the company’s debt, so that the sale of shares in the company is being discussed and expansion could slow down, at least for the next two years. Sinoma Cement has also set out on a strong expansion course. In 2007 Sinoma opened negotiations on a deal with Tangshan Jidong, but these have not yet been concluded. If Sinoma succeeds in taking over Jidong, it would be the third company in China, alongside ­
Anhui Conch and CNBM, to join the worldwide TOP 5.
 
Anhui Conch Cement (Conch) was the leading company in China’s cement industry for a period of 10 years. The firm was not established until 1997 and arose from the assets of ­Ningguo Cement (Fig. 7) and Baimashan Cement. Outside China this company became known because of its so-called T-strategy. This involved supplying grinding plants in the most important cement markets of the East with clinker from its own production lines near the raw material deposits. At the end of 2008 its clinker production capacity was approx. 81 Mta and its cement production capacity was 96 Mta. It operates 21 clinker production plants with 50 production lines and 25 separate grinding plants. Wuhu Conch (Fig. 8) with its 4 production lines is one of Conch’s largest plants. In 2008 Conch invested 5 billion Yuan. Eight new 5000 t/d clinker production plants were constructed and 20 new grinding plants were installed. Up to now, 28 WHR systems have been put into operation with an average power generation capacity of 360 MW. In 2009, Conch intends to reduce its investments by 30  % to 7 billion Yuan.
 
CNBM (China National Building Material Company) already rose to second place in the capacity ranking in 2007 and has meanwhile taken over the first place due to a number of acquisitions. In mid 2008 two companies were affiliated: China United (CUCC), which brought in 33 Mta capacity and South Cement with over 69 Mta capacity. CUCC alone comprises over 30 cement producers, but in addition new factories like the 6000 t/d plant in Qingzhou (Fig. 9) were built. South Cement was not established until September 2007 and – thanks to the incorporation of Zhejiang Leomax and Jiangxi ­Wannianqing – has grown fastest. Up to the end of 2008, CNBM’s cement production capacity was expanded by a further 18 Mta to
120 Mta through new cement production lines and acquisitions, such as Wulan Cement. In March 2009 Northcement was established  by CNBM as a new flagship company. The ­strategy of achieving success both as an important cement producer and as an important cement plant engineering and construction firm remains to be proven in coming years.
 
Currently, 3rd place in the rankings is taken by the cement producer Shanshui Cement Group (Sunnsy), whose present cement production capacity is almost 40 Mta. By 2010, this company intends to own a production capacity of 50 Mta of clinker and 80 Mta of cement. Shandong Cement, the precursor company, was founded in 1977 but did not produce more than
0.1 Mta until 1989. In 1993 its cement output was 0.6 Mta. From then on the company grew steadily. The group is focussed on Shandong Province and Northeast China. At the end of 2007, it took over 5 cement producers in the Shandong and Liaoning provinces. In 2008 it had a clinker production capacity of 24.8 Mta and a cement production capacity of 39.8 Mta. It owns 18 clinker production plants (Fig. 10) and 82 grinding plants (Fig. 11) and has considerably expanded its grinding capacity in recent years. The company succeeded in boosting its cement sales by almost 100  % in the first half of 2008. Cement sales make up about 78  % of the company turnover.
 
Huaxin Cement Co. (HCC) is the strategic partner of Holcim. This company has raised its cement production capacity from 31.4 Mta in 2007 to approx. 38 Mta by installing new lines. It only owns modern cement factories with precalciner systems (Fig. 12) and mainly serves the cement markets in the central Chinese province of Hubei and the neighbouring southern and eastern provinces. In 2008, Holcim increased its stake in ­Huaxin from 26.1 % to 39.9  % by increasing the share capital, making it the largest single shareholder in the company. Anhui Conch owns a minority shareholding in Huaxin. In the first 3 quarters of 2008, Huaxin increased its turnover by 39  % to 4.5 billion Yuan. Its investments in the first 9 months of the year amounted to 1.5 billion Yuan, representing an increase of 255  % over the same period of the previous year. These investments primarily relate to the expansion of capacities and investments for WHR systems. Whether the company’s target capacity of 80 Mta in 2010 is feasible mainly depends on the extent to which it can make other acquisitions in addition to Shaoyang Cement.
 
The 5th, 6th and 7th places in the capacity rankings are currently held by Jidong, Sinoma and Lafarge Shui On. It seems that ­Jidong Cement wants to avoid being taken over by Sinoma and intends to increase its own capacity from 38 Mta to 60 Mta in 2010. At present, it is strongly expanding its production capacity in the provinces Shaanxi, Chongqing and Sichuan. This also involves the joint enterprises Fufeng (Fig. 13) and Jingyang with HeidelbergCement.

Sinoma has not given up the project, initiated in 2007, of ­obtaining a majority shareholding in Tangshan Jidong and ­anticipates a successful conclusion this year. If this comes to ­fruition, Sinoma itself will have a cement production capacity
of 100 Mta or more in 2010, having already taken over Yixing Henglai, Zhengda Cement and Ningxia Building Materials in 2008.

In consideration of worldwide investment cutbacks, Lafarge Shui On Cement (LSOC) plans to increase its cement pro-duction capacity from 24 Mta in 2007 to only 39 Mta by 2010. At present, LSOC owns 18 production lines. After ­Dujiangyan 2
(Fig. 14), the next plant to be brought on line will be Yong ­Chuan. A further plant is being constructed in Yunnan ­Province. After the acquisition of Sichuan Shuangma, other takeovers will possibly follow.
 
The subsequent places in the ranking are taken by Henan ­Tianrui, Hongshi, BBMG, Jilin Yatai and Taiwan Cement Corp. Tianrui is the biggest cement manufacturer in Henan Province. Since 2003 it has constructed 6 new plants, including 2 new lines at the Dalian factory (Fig. 15). In 2010 the company intends to have a production capacity of 45 Mta. The American Private Equity Corporation KKR (Kohlberg Kravis Roberts) is the principal investor. Goldmann Sachs has obtained a 25  % holding in Hongshi Holding (Red Lion Cement). This cement producer was only established in 2002, but is market leader in Zhejiang and intends to extend its production capacity to
50 Mta by 2010.
 
The BBMG Group (Beijing Golden Corner), founded in 2005, has grown quickly thanks to its takeover of Hebei Taihang ­Cement. Meanwhile, BBMG owns a capacity of 15 Mta and plans to expand this to 32 Mta by 2010. The company is the biggest cement manufacturer in the Gulf of Bohai region and its plants (Fig. 16) delivered approx. 90  % of the cement used for the Olympic Games construction projects. Since 2009 the Irish CRH Group has had a 26  % equity interest in Jilin Yatai, which owns 4 integrated cement plants and 4 separate grinding plants with a capacity of 14 Mta. The last place in the 2007 ranking of the TOP 12 is taken by the Taiwan Cement Corp. However, by taking over Chia Hsin Cement, Taiwan Cement raised its capacity to 24.6 Mta in 2008 and intends to expand further to 42.1 Mta by 2011.
 
A number of other companies follow with two-digit cement production capacities. These include HeidelbergCement with its 5 cement plants and equity interest in Chinese cement ­factories, as well as Prosperity Minerals, which has a stake in
5 cement plants, one of which is Anhui Conch’s Yingde Dragon Mountain (5.9 Mta). The other larger local producers include Henan Tongli, Huarun (China Resources Cement), JYSN (Gold Circle), and Jiangsu Jinfeng Cement. Aside from ­Holcim, Lafarge, HeidelbergCement, CRH and Taiwan ­Cement, ­various other foreign cement manufacturers are represented in China. These are Asia Cement China ­(Yadong ­Cement), ­Taiheiyo ­(Qinhuangdano Asano, Dalian Onoda, ­Jiangnan ­Onoda), ­Italcementi (Fuping, Zhejiang Gunangyu) and ­Cimpor ­(Shandong Liuyuan).
 
5    Chinese plant engineering also
undergoing radical change
In China, NSP kiln technology has developed rapidly. In 1997, just over 80 kilns were equipped with precalcining systems and represented a total clinker production capacity of barely 35 Mta.
At the end of last year the number of NSP kilns had exceeded 920 and the clinker capacity was over 750 Mta. Initially, practically all NSP kiln lines employed foreign technology. Nowadays, projects in China involving foreign plant engineers have become rather scarce (Fig. 17). The art of kiln design has been studied, absorbed and implemented by Chinese design institutes such as TCDRI (Tianjin Cement Industry Design & Research Institute), NCDRI (Nanjing Cement Design & Research Institute) and HCRDI (Hefei Cement Research & Design Institute). Today, TCDRI and NCDRI and also CDRI (Chengdu Design & Research Institute) belong to the Sinoma Group, while HCRDI belongs to the CNBM Group. Sinoma and CNBM are meanwhile in a position to supply turnkey cement plants with 100  % Chinese technology. Up to the mid 1990s, the capability of Chinese plant suppliers was practically restricted to plant capacities of 1000 to 2000 t/d. Today, they are routinely supplying plants of 4500 and 5000 t/d and sometimes even 10 000 t/d. This is illustrated by numerous projects in China and other countries.
 
Sinoma stated some time ago that it is involved in 90  % of
the large cement projects in China [2]. It claims primary responsibility for the construction of 500 large cement production lines in China. In 2008, the peak year so far for investments in China, it booked engineering orders worth 6,179 billion Yuan (882 US$m) in the 1st half of the year. However, this is only a fraction (5.9  %) of the Chinese investments of 105 billion Yuan. Sinoma’s half-yearly order intake thus corresponds to approximately the capital cost of 10 large clinker production lines of 4500 t/d. Moreover, it is unclear to what extent equipment supplies from CEMTECK and Tangshan Sinoma Heavy Machinery, the Sinoma Group’s two most important mechanical engineering companies, are included in the above-mentioned order intake figure. However, it can be presumed that aside from Sinoma a large number of other cement plant providers obtain a major portion of the contract-award potential. These other cement plant providers include CNBM, ­CITIC Heavy Machinery, Jiangsu Pengfei and China Sky Cement (Shanyang Heavy Machinery). Jiangsu Pengfei (Fig. 18), for example, achieved a turnover of 1.07 billion Yuan on the national market in 2007. The company has the capability to build 250 ball mills a year.
 
In addition to the above-named plant engineers, a number of cement producers, like Anhui Conch, Huaxin and Jidong, also have own design institutes and plant construction companies. One can conclude from this fact that these cement producers wish to maintain a high degree of plant-supply independence and that possibly the competition on the cement sector represented by Sinoma and CNBM is not universally regarded as positive.
 
It is interesting that Anhui Conch has entered into a co-
operation agreement with Kawasaki for the construction of WHR plants. Following market successes both within the Conch Group and outside of it, the joint enterprise Conch ­Kawasaki has meanwhile also commenced building and ­marketing vertical roller mills. Further important suppliers of
WHR plants for the cement industry in China are Sinoma, CNBM and Chinacables.
 
6    Conclusions
In the Chinese cement industry nothing is as it was. The growth in cement consumption has declined perceptibly, and after government infrastructure programmes come to an end a fall in the per-capita consumption must be expected. Such an enormous consolidation of the cement industry has taken place that the TOP companies will soon own over 50  % of the total production capacity. In the international rankings, 3 Chinese companies have entered the TOP 5. Subsequent to the investment boom in 2008, a steep decline in plant investments must be anticipated, because the replacement potential for obsolete kiln plants is decreasing and some regions already have surplus cement production capacity. A number of companies have become firmly established on the plant engineering sector in China and competition has increased perceptibly.