The trend of overcapacity in China's cement industry is now. According to the latest statistics of China Cement Association, in the first November of 2009, the national cement investment was 150.561 billion yuan, an increase of 59.8% over the same period last year. Although compared with 66.3% growth in the previous August, it is still in the high growth range. It is estimated that the cement investment will be 165 billion to 170 billion yuan in the whole year of 2009, and the investment will increase by 60 billion to 65 billion yuan compared with the previous year.

Kong Xiangzhong, secretary-general of China Cement Association, told China Industry Daily recently that the announcement on the clean-up of construction projects in the cement industry issued by the National Development and Reform Commission in November 2009 and the "Opinions on Suppressing Overcapacity and Repeated Construction and Guiding the Healthy Development of the Cement Industry" issued by the Ministry of Industry and Information Technology are important documents guiding the structural adjustment of the industry.

Previously published "Preliminary Plan for the Elimination of Backward Production Capacity of Cement and Flat Glass in China in 2009" showed that this year the country will phase out 46.61 million tons of cement production capacity and 7.8 million heavy boxes of flat glass production capacity. However, the plan is not final. The Ministry of Industry and Information Technology has issued the Notice on the 2009 Plan and the Three-year Plan for the Elimination of Backward Capacity of Cement and Flat Glass, requiring all localities to fill in the National Plan for the Elimination of Backward Capacity of Cement and Flat Glass in 2009. Experts say the number of phased-out capacity will rise substantially.

The trend of overcapacity is now in place

China Industry Daily reporters learned that from January to November 2009, the cement market was booming gradually, and the output increased at a relatively high rate. The national cement output was 1.493 billion tons, up 19% year-on-year, an increase of 13.3 percentage points over the same period last year. China Cement Association predicts that the national cement output will exceed 1.6 billion tons in 2009. Last year, it increased by about 240 million tons, an increase of about 17% over the same period last year.

The implementation of a series of infrastructure investment plans, especially the start-up of many key projects, has supported the rapid growth of cement production this year, and maintained the cement production and sales rate in the normal range.  But at present, different regions have shown different growth trends, showing the characteristics of regional surplus.

From January to November 2009, the sales revenue of cement industry reached 50.721 billion yuan, an increase of 17.21% over the previous year. The total profit of the cement industry in China reached a record high of 36.618 billion yuan, an increase of 39% over the previous year. But in the first August, the gross sales interest rate of the national cement industry was 15.4%, down 0.63 percentage points from last year, the first decline since 2005. Experts believe that although the gross profit and sales revenue have increased steadily, gross interest rates have begun to perform poorly. This shows that the current cement market demand growth and productivity release pressure is a painful game.

Kong Xiangzhong told China Industry Daily that accounts receivable have increased by more than 10% in recent years, and the industry's loss has reached 30%. Many small businesses are not in good condition. The trend of regional overcapacity in cement industry has begun to emerge.

Cement prices in eastern and southern China, which once plunged, began to pick up in September last year. Kong Xiangzhong said that the fourth quarter of each year is the traditional peak season, and the price of cement will rise compared with the average price of the whole year. There are reasons for the rise in cement prices in South China and other places. First, a lot of capital for infrastructure projects has been put in place, and a large number of raw materials have been purchased. Second, the transportation capacity has been greatly reduced. This does not mean that downstream demand can continue to increase.

The latest data released by the China Cement Association show that the average price of cement in 2009 is lower than that of last year, due to factors such as falling raw material prices and full release of production capacity. As of December, the cement prices of 18 provinces and municipalities decreased year on year, and the Yangtze River Delta region took the lead in driving the price increase in 2009. However, the price still declined in varying degrees compared with the previous year, with Jiangsu falling by 12.50% year on year, while Sichuan declined by 22.22%.

Industry experts predict that up to now, the price of cement has not improved greatly, which is also due to the pressure brought by the release of cement production capacity.

Various factors stir up the whirlpool of cement wealth

Despite the current trend of overcapacity, investment in cement is still high. From January to November 2009, China's cement investment amounted to 150.561 billion yuan, up 59.8% from the same period last year, but still in a high growth range. The cumulative growth rate of investment in Southwest China ranks first, reaching 130%. According to the situation of investment share in various regions, the share of investment in Southwest China has increased the most, from 18.2% to 26.2%, up by 8 percentage points.

After the disaster in Sichuan, the rebuilding drive, cement investment and cement investment growth rate are higher than the first in the country.

Cui Yuansheng, deputy director of building materials information agency, said that compared with coal, electricity and other industries, cement investment is not high and the return is relatively stable. A production line with a daily output of 5000 tons has invested about 600 million to 800 million yuan, and the cost can generally be recovered within 3 to 5 years.

Industry experts said that the entry threshold of the cement industry is not high, the product technology is not very difficult, and there are few market barriers. On the one hand, the strong profit-making effect of the cement industry has attracted a lot of capital from other industries to enter. On the other hand, the cement market competition only relies on scale efficiency to reduce costs and form competitiveness, so the cement enterprises are competing to expand the scale of the enclosure.

In addition, for the approval of cement projects in China, the state clearly stipulates that the construction of production lines with a daily output of more than 5,000 tons needs the approval of relevant state departments, and the production lines with a daily output of less than 5,000 tons only need the approval of local authorities. The lack of consideration for the national layout of cement industry by local authorities leads to the control of cement production projects.