China: power rationing drives up cement prices

China: power rationing drives up cement prices
Published: 10 November 2010

Cement prices in China have climbed steadily since August, as local governments resorted to power rationing in their final dash to meet the energy-intensity cut goals for the 2006-10 period. Local cement price data provider, Digital Cement Net, reports that cement prices in most Chinese regions increased 5.6% in October from a month earlier and 6.15% from the same month of 2009. Eastern China and central-southern China have led the cement price increase, recording over 10% MoM gain in prices and over 20% YoY gains.

Major cities in eastern China, such as Hangzhou, Hefei and Shanghai, have reported the most acute price upsurge, by 20-40% y/y in October, mainly due to the fact that supply in the region has been restrained further by the massive industry consolidation undertaken in recent years.Significance: Power rationing adopted by local governments over the past couple of months has already caused rampant distortions in the market, manifested by the recent diesel shortage—which happened as companies start generating power by themselves—as well as the shooting-up of prices for key energy-intensive products such as cement.

With prices soaring, manufacturers will almost certainly start producing more next year after the local governments turned in their energy-intensity scorebook and after power supply is normalised—which will probably offset most, if not the entire energy intensity cut achieved through power rationing.