After the Spring Festival, with the resumption of downstream projects, cement prices in some regions have been rising for several consecutive rounds. The cement industry seems to be accelerating its recovery, and the call for explosive demand is gradually rising. But is this really the case?
The author will analyze the current recovery of cement demand from various aspects such as cement shipping rate, inventory, production capacity, and annual demand.
1
、 There is still a gap between demand and normal levels
On a year-on-year basis, the cement shipment rate increased to nearly 40% in early March, and the cement shipment rate from February to March was about 10% higher than the same period last year. The recovery of cement demand seems to be strongly supported by data.
However, the early spring break this year and the impact of the receding epidemic are variables that cannot be ignored. When we reset the data and stand on the same track, the improvement in cement shipment rate after the 2023 Spring Festival will become overshadowed. After the Spring Festival in 2023, the increase in cement shipping rate was significantly slower than the normal levels in 2019 and 2021, and the gap was further widened over time - the cement shipping rate was 20-30% lower than the normal level in the fifth week after the holiday.
In addition, compared to 2022, the cement shipment rate in 2023 was only in a flat state. In the first year after the epidemic was lifted, the demand for cement did not usher in spring with the melting of winter snow. It is even more noteworthy that after excluding the factors of the epidemic, the recovery of cement demand is not as good as in 2022. Except for some regions such as the Pearl River Delta and Shanghai, where demand has recovered rapidly, other regions have shown no impressive performance, especially in the northern region, where downstream construction sites and mixing plants have not yet fully resumed work and the market has started slowly. Overall, downstream demand is currently flat compared to the same period and in a lukewarm and tepid state.
Figure 1: The national cement shipping rate after the holiday is lower than the normal level (%)
Data source: cement Big data（ https://data.ccement.com/ ）
2、 Cement inventory is still high, and cement growth is low
Since the fourth quarter of last year, the expectation of peak season demand has fallen short, coupled with the resurgence of the epidemic, and the inventory level of cement enterprises has been continuously increasing, exceeding 70%. After the beginning of spring this year, due to the good performance of staggered peak execution and the gradual recovery of demand, the level of inventory has decreased, but it is still higher than the same period in 2022. High inventory suppresses the price increase. Despite the recent surge in cement prices in several regions, only a few regions such as the South China Pearl River Delta and East China Jiangsu have implemented measures effectively, with limited implementation in most regions. The national cement prices have only slightly increased.
Figure 2: The national cement inventory level is relatively high (%)
Data source: cement Big data（ https://data.ccement.com/ ）
3
、 The problem of severe overcapacity cannot be ignored
In 2021, the national cement production capacity exceeded 3.5 billion tons, with a cement output of 2.36 billion tons and an excess rate of 32.5%. In 2022, demand plummeted, with cement production reaching 2.13 billion tons. The actual demand may be lower, but production capacity has not significantly decreased, and there is a trend of increasing the duration of staggered production. According to calculations, the overcapacity rate of cement production in 2022 reached a new high of 40%, resulting in a significant oversupply in the market. At present, the more serious problem in the industry is the serious overcapacity. How to guide the exit of low competitive capacity and speed up the Market clearing under the background of demand fluctuation returning to a reasonable range, so as to maintain the balance between supply and demand in the market, and keep prices and profits at a reasonable level should be a question for the whole industry to ponder.
Figure 3: The current cement overcapacity rate reaches 40%
Data source: cement Big data（ https://data.ccement.com/ ）
4
、 Looking at demand rationally, the industry needs stable development
In the 2023 Two Sessions, China set an economic growth target of around 5% for 2023, and various provinces have also raised their GDP growth targets, indicating a clear recovery of the domestic economy. In February 2023, the People's Bank of China released its social finance data for January. The credit end RMB loans increased by 4900 billion yuan, and the medium to long-term loans of enterprises and institutions increased by 35000 billion yuan, all of which reached historical highs. The market has strong optimistic expectations for this year.
However, we should note that the current real estate market has not yet reached a true bottom, especially with the expected negative growth of new construction areas this year. The driving effect of infrastructure is mainly on existing projects, and cement demand is expected to continue to decline to a certain extent. Even though the credit intensity has been too strong this year in the post epidemic era, the impact of economic structural changes on cement demand has been relatively limited. On the contrary, due to the overdraft of pre project demand, industry demand will inevitably experience a greater decline in the future. Therefore, we should rationally view the recovery of current cement demand.
(Editor in charge: Anonymous)
Article source: China Cement Network
