Three sides attack cement companies how to fight back

As domestic credit crunch, pressure for capital recovery continues to increase, and progress of key projects and infrastructure construction slows down, cement sales have limited upside and downward pressure, affecting the supply and demand relationship of cement and increasing uncertainties in product prices, under severe conditions. How do cement companies face the cement market that is not routinely licensed?

Demand fluctuates under the influence of factors such as credit tightening and inflation expectations. Market demand for cement will inevitably create concerns.

In the fourth quarter, the south was the traditional peak season. On the one hand, the weather turned cold and good for construction, and it also passed the rainy season. Combined with the deadline before the end of the year, the cement demand in the fourth quarter was generally better than the third quarter.

In the fourth quarter, the north was a traditional off-season. For example, in the northeast and Xinjiang regions, due to winter construction operations in the end of October or early November, demand fell. In particular, during snowfall and freezing weather, demand was even lower during the year. At the same time, from September to October, the peak sales of real estate did not prosper. As a result, the market expects the number of newly started real estate projects to decline, which in turn may cause demand to be under pressure in the first half of next year. The superposition of the two factors will make the off-season region relatively lighter, and the peak season region will be less prosperous than in previous years.

Judging from the situation in previous years, the cement industry has a concept of winter storage in the fourth quarter, and cement prices have fallen more in the off-season. However, in recent years, some regions have changed the profit model and operating habits of winter storage, and in the off-season, stopping production capacity has kept prices high. Therefore, although the northern part of the region entered the off-season in the fourth quarter, cement prices are not necessarily declining sharply, and the price of cement in the region that has continued winter storage habits may drop significantly.

The southern region is divided into two categories. First, in the third quarter of Guangdong and Guangxi, cement prices have risen sharply due to power curtailment. Current restrictions on power supply have been lifted, and cement prices have declined during the peak season. Second, cement prices in the third quarter of East China have declined and entered. After the peak season, cement prices are expected to recover slightly.

All this indicates that the demand for cement will be suppressed to some extent.

Insufficient power during the peak season In the context of strong demand and capacity expansion, cement production achieved rapid growth. From January to July, China's total cement output reached 1.135 billion tons, an increase of 19.16% year-on-year; among them, July production was 183 million tons, a year-on-year increase of 16.8%.

From the middle of June to the end of August, it was the traditional off-season of the cement market. Affected by the decline in demand, the average cement price in July and August dropped by RMB12 and RMB9 respectively. In late August, the east China inventory was affected by the rainy weather. Inventories remained at a high level due to the release of production capacity in the southwestern region. The production of kiln production in the Hebei region still needs to be broken in. The effect is not obvious.

At the same time, with the effect of tightening policies appearing, the real growth rate of fixed asset investment is at a low point. With the slowdown in railway and highway investment and the continuation of real estate regulation, the declining trend in cement demand growth will appear.

Unclear price movements As tightening policy effects appear, the real growth rate of fixed asset investment is at a low point. With the slowdown in railway and highway investment and the continued regulation of real estate, the decline in the growth rate of cement demand is difficult to change. Cement prices are even higher. The decline in the market is difficult to change.

According to relevant data, since June, cement prices have continued to decline, and the average price fell from 434.79 yuan/ton in June to 414.03 yuan/ton in August.

By September, it was still in a downward trend. The decline was mainly manifested in Hunan, Hubei, and Chongqing in the southwestern region of Central China. The cement price in Chongqing fell the most, reaching 40-50 yuan/ton, and the lowest ex-factory price for individual companies was reached. 235 yuan/ton. Although the price of cement affected by restricted electricity in individual regions rose by 0.21% month-on-month, prices in Hunan, Hubei, and Chongqing, etc., were adjusted downwards, which inevitably led people to pay attention to the trend of cement prices.

Into October, cement prices in various regions remained unclear.

The taste of electricity shortage in Guizhou was enough. From July to early September, cement prices soared by RMB 120/ton. At the beginning of October, the electricity restriction was lifted, the company resumed normal production, and the instant supply of large-scale release, cement prices fell 40-50 yuan / ton. On the whole, the Guizhou market was able to rise only with the help of external power limiting prices. After the external factors were lifted, market pressure remained and did not change fundamentally. Therefore, it would take time for the Guizhou regional market to turn for the better. .

However, as far as the Sunan market is concerned, most of the major cities in southern Jiangsu, including Wuxi, Suzhou, Changzhou, etc., recently the price of clinker rose by 20 yuan/ton to 370-380 yuan/ton, and the cement price stabilized at 400 yuan/ton. . Market participants are surprised at this. Since March this year, this is the first time cement prices have risen in southern Jiangsu. The preliminary reason is attributed to price synergy.

In this regard, analysts believe that the price rebound in individual regions does not reflect the national market trend, cement prices are still in the drop channel, there is no sign of bottoming out.

Counterattack one by one

Cement stocks in the capital market are setting off another wave.

On June 18, Qilianshan announced that it planned to issue shares worth 1.7 billion yuan, and the proceeds from the allotment will be used to repay 400 million yuan of short-term vouchers, and the rest will be used to supplement liquidity.

On June 20th, Qingsong Jianhua also announced that it will raise funds by 3.788 billion yuan. The funds raised were used for the reconstruction and expansion of new dry cement projects in Kezhou and Kuqa, and Xinjiang Qingsong Building Material Company newly built two new dry process lines.

On June 28, China Resources Cement entered into a three-year, HK$1.5 billion term loan facility agreement with a group of syndicates.

On August 2nd, Yusheng Cement issued a short-term RMB 370 million short-term ** vouchers for 366 days. The relevant person in charge pointed out that the funds raised in this issue are mainly used to supplement the funds needed for the company's production and operation activities and improve the structure of the SSE.

On August 30th, Jiangxi Cement Company issued a short-term vouchers registration amount of 800 million yuan to be recognized by Jiangxi Traders Association.

On September 30th Jiangxi Jiangxi Ganzhou Southern Wannianqing Co., Ltd., a Jiangxi cement subsidiary, sold the equipment for a price of 100 million yuan to a financial leasing company to obtain funds for production flow.

Why in the short period of four months, many cement companies have made big waves?

“The cement company's debt ratio is generally higher. Under the increasingly tightened credit environment, the cost of the company’s implementation from banks and other channels is also increasing. Therefore, some companies repay debts mainly through re-smoothing to reduce funds. At the same time, it will indirectly reduce financial expenses," said one analyst. Is it really the truth?

Although in various announcements, companies have pointed out that **funds are mainly used for "repayment of debt", "supplementary liquidity", and "investment and construction of new projects," but it is not difficult to find through data integration, debt repayment ** The share of funds is not large, and more funds are “supplementary liquidity”.

Supplementing liquidity, this is a vague concept. Some stakeholders pointed out that cement companies do everything possible to pave the way for mergers and acquisitions.

Under the pressures of overcapacity, backward elimination, and energy conservation and emission reduction, national policies strongly support the merger and reorganization of the cement industry. Faced with the opportunity of “declining from the sky”, cement listed companies are mostly regional leaders and will become the leading force for regional integration. , Adequate funding reserves will undoubtedly take the lead in future acquisitions.

Prior to this, the Ministry of Industry and Information Technology and the National Development and Reform Commission issued many articles urging that the new cement (clinker) production line project should be strictly controlled, but the company should support waste heat power generation on the production line (the use of excess heat energy in the production process to convert electricity).

Affected by this, cement companies' reinvestment has seen few new construction line projects, mostly shifting to waste heat power generation and concrete mixing plant projects.

In the new line approval report, we can easily find that there are often such words as “will also be equipped with a set of xxxxkW pure low-temperature waste heat power generation system”. The cement production line under the name of waste heat power generation is still under approval.

Regarding this situation, related analysts pointed out that the fundamental purpose of frequent implementation of cement listed companies is to use financial advantages to optimize the financial structure, further improve regional industries, strengthen regional resource integration capabilities, and consolidate market share.

Counterattack the second price alliance into the fourth quarter, cement peak season has become a trend, coupled with excess capacity, this can be described as a big nightmare for cement companies, in order to ensure profits, cement companies have Baotou warm, limit production insured.

With the power shortage at the end of August, a new round of production shutdown in the East China region began, further expansion of the maintenance scope of the kiln, and prolonged production cuts to resist the risk of price drop in the East China region. The scope of stopping the kiln, including the southern part of Shandong, Hubei and Anhui regions, Zhejiang, Jiangsu, Shanghai, etc., at the same time the time for stopping production of the kiln was extended from normal 10 days to about 15 days.

Zhejiang, Shanghai, and Jiangsu provinces have persisted in energy-saving and production-restricted production in order to ensure good annual benefits. As the Baohe restricted production insured prices, cement prices rose steadily.

After the National Day, the prices of clinker and cement in cities such as Zhenjiang, Changzhou, Wuxi and Suzhou in southern Jiangsu were raised by RMB 20/t. Clinker is now in place price 370-380 yuan / ton, high standard bulk cement 400 yuan / ton. After the holiday, most cement companies stopped production according to the original plan of the restricted production agreement, which was the main driving force for price increase.

In addition, the price of cement in Zhejiang remained stable while the price of southern clinker increased slightly by 10 yuan/ton.

It is understood that starting from September 20, cement companies in Zhejiang Province under the initiative of Southern Cement have stopped production. By now, 90% of the companies have been executing.

In addition, through the suspension of production, the cement price of enterprises in eastern Hubei also rose by RMB 30-50/t.

Since the Yangtze River coast is a mobile cement market, if only relying on Jiangsu, Zhejiang and Shanghai to control supply is still not enough, the East China market will see further cooperation in the surrounding areas such as Anhui, Hubei, and Shandong, especially if there is a lot of rain in the off-season and the demand is weak.

However, despite the cessation of kiln production, the release pressure of new line production capacity is still unstoppable, and the price alliance formed by the cement industry immediately appears to be very fragile. Some cement companies “can't stand it” and the status quo of the oversupply of the cement industry in the medium and long-term is still difficult to change. The price alliance is also a flash in the pan, and will soon be impacted by market changes.

Counter Strikes Three Extensions of the Industrial Chain China has not stopped its infrastructure construction since its reform and opening up. It is well known that infrastructure has greatly stimulated the demand for cement. Once upon a time, huge investments were directed to cement. With blind investments and continuous expansion of production capacity, there are various degrees of overcapacity in various regions of the country. It is understood that since 2009, the cement industry has been listed as an industry with excess capacity, and has repeatedly been criticized by the national regulatory authorities.

With the general surplus of cement production capacity, relying on a new production line will only make the already saturated market more surplus. Cement companies need to look for new ways of business growth, and then they will point to the extension of the industrial chain.

On July 26th, under the turmoil that listed companies followed suit, “Mining”, Jiangxi Cement said it would establish a wholly-owned subsidiary, Jiangxi Wannianqing Mining Co., Ltd., to be responsible for the mining and sales of limestone and phyllite rock for cement production. Jiangxi Cement stated that this move is to rationalize the management system, take the path of professional management and professional management, and enhance the competitiveness of enterprises. On August 2, Sichuan Shengsheng Cement issued 300 million yuan 366-day short-term vouchers. Yusheng Cement announced that the funds raised during the current period were mainly used to supplement the company’s funds for production and business activities and improve the structure of the company. In this regard, industry sources believe that after the production of the one million tons project of Yusheng Cement, the cost of gypsum will be significantly reduced, and it will be able to become the main gypsum supply in Sichuan.

On August 10, Tianshan announced the semi-annual report that in order to strengthen the control over the mixed markets in the Hami region, it plans to acquire a wholly-owned subsidiary of Hami Tianshan, a wholly-owned subsidiary of Hami Tianshan Commodity Concrete Co., Ltd. in cash. Xin Mining and Zhonghe Sandstone's operating effective assets.

Under the severe test of the cement industry, cement is an intermediate industry. If cement is to be established in the market for a long time and maximize profits, it is an effective way to build a complete industrial chain by combining the upstream and downstream.

Upstream development can solve raw material problems to reduce costs, and downstream development can expand the market to win more profits. At present, the upstream expansion of cement companies is mainly concentrated in the fields of mines, sandstones, aggregates, and coal mines. Concrete in the downstream market has become a hot spot for major companies to chase.

The former chairman of the China Cement Association, Lei Qianzhi, has also repeatedly called for the extension of the industrial chain to be the key to the development of the cement industry during the “12th Five-Year Plan” period. Enterprises should change from simply operating cement products to operating a complete industrial chain. At the same time, this is also a long-term and stable profit spot in the increasingly tight cement industry.