Capitaliding on expanded public construction on the other side of the Taiwan Strait, major Taiwanese cement makers are expected to continue enjoying robust business this year in the Chinese market, which has become the major driver of their growth.
Taiwan Cement, Taiwan’s leading cement maker, expects to double its sales in the Chinese market to 24 million metric tons this year, more than double the 10 million metric tons it projects for its home Taiwanese market, according to Koo Cheng-yun, the firm’s chairman.
Douglas Hsu, chairman of Asia Cement, also anticipates a hefty growth in Chinese sales, thanks to the inauguration of a second production line at its Sichuan plant. The new line doubles the plant’s annual capacity to 4 million metric tons and puts the company in a strong position to tap Sichuan’s post-earthquake reconstruction market.
Goldsun Cement is confident of boosting its sale in the Chinese market to 1.9 million metric tons this year, up 20%.
One major source of growth will be demand from public construction projects associated with the Chinese government’s 4 trillion-yuan program for expanding domestic demand. Of the huge budget, 1.8 trillion yuan, or 45%, will be used for major public construction projects, including railways, freeways, and airports, with another 1 trillion yuan being earmarked for post-earthquake reconstruction in Sichuan Province. The total scale of the economic stimulus program is actually 6-8 trillion yuan, since the State Council is asking municipal governments and the private sector to make corresponding investments.
Taiwanese cement suppliers have organized task forces to bid on the huge business opportunities that result, and some successes have already been scored. Taiwan Cement, for example, has landed orders for the Fuzhou airport’s mass rapid transit system and smaller orders for Guangzhou’s freeway and railway projects. Following the inauguration of two production lines at its Guigang plant in Guangxi Province, the company is ready to tap more sales opportunities in China.
Asia Cement has also made gains, taking cement orders for a Chengguan high-speed rail project, Chengpeng freeway project, and a number of reconstruction projects in Sichuan. Goldsun is the second-largest supplier of cement for a 5-million-metric-ton procurement project of the Fujian provincial government.
Both Taiwan Cement and Asia Cement expect public construction projects to contribute 30-40% of their Chinese revenues this year.
The Chinese market will be the major source of profit as well as growth for Taiwanese cement makers this year. Due to the strong demand from reconstruction work, Asia Cement can command 500 yuan per metric ton for its sales in Sichuan, the highest price in the Chinese market. This helped the company to earn 426 million yuan in profit on its Chinese operation in 2008, up 70% from the year before. Thanks to plunging prices for raw materials, notably coal, Goldsun expects to see its gross margin rise above 18% this year, up from 2008’ s 12%. (PL, Feb. 2009)