China’s changing industry structure

China’s changing industry structure
Published: 07 February 2008

More global cement producers have been swarming into China in recent years, and many domestic companies are actively consolidating local cement markets, which signals a change of the nation’s cement industry structure.

On January 30, 2008, Jilin Yatai (Group) Co., Ltd declared that it would sell 26% of its wholly-owned arm Yatai Group Cement Investment Co., Ltd. to a cement affiliate of CRH plc.

Yatai Group, as a state-run listed cement producer lying in the northeastern domestic city of Changchun, fixed the price for equity transfer at nearly CNY 2.13bn, and was forecasted to gain return on investment of CNY 1.4bn. It wants to introduce CRH’s mature business philosophy and management model and advanced deep processing technologies of cement products, so as to further extend its cement industry chain, expand the production capacity, and maintain its leading position.

Meanwhile, CRH’s cement subsidiary will get the priority to buy an additional 23% stake in Yatai Group Cement Investment in the following four to six years, said people familiar with the matter.

Three years ago, Yatai Group negotiated with CRH for many times, and they signed a letter of intent on cooperation on October 16, 2006. Both parties expect to jointly integrate the cement market in northeast China.

In addition, China National Materials Group Corp (Sinoma Group),has recently beaten its aggressive rival China National Building Material Group Corporation (CNBM) in competition for control of Hebei Provincial Jidong Cement Group Co, Ltd.

Sinoma Group and its listed affiliates are allowed to take control of Jidong Cement Group, which is located in the northern Chinese city of Tangshan, via direct investment increment. Jidong Cement Group will obtain the total investment within three months after the related parties all confirm the specific amount and reach a series of formal agreements.

Then the buyer is to separately infuse CNY 4bn, CNY 4bn and CNY 5bn from 2008 to 2010 into Jidong Cement Group, with a view to helping the latter drive its annual production capacity and sales revenues up to 130Mt and CNY 30bn, respectively.

In the not-long-distant future, Jidong Cement Group will be created as the largest cement producer in China or even one of the world’s top five cement producers, and it is confident of further raising its voice in the cement field.