China prices soar as modernisation campaign cuts capacity

China prices soar as modernisation campaign cuts capacity
Published: 21 December 2007

Cement prices in several Chinese provinces have soared as the campaign to close inefficient facilities has eliminated capacity before it can be replaced, causing shortages, China Cement Net said on December 20.  
 
The retail price of Portland cement 32.5 in the southern coastal Hainan Province was CNY500-580/t (US$67.86-78.71) this week after more than three months of sharp fluctuations. Although prices have fallen from a peak of CNY700/t in August, they are still up from CNY270-280/t.  
 
In response, Hainan authorities imposed emergency price ceilings in late November, setting a maximum ex-factory price at CNY380/t. Also, 200,000t of bulk cement from Guangxi were shipped into Hainan earlier this month. Still, some projects in Hainan were suspended due to the price hikes.  
 
Hainan’s situation is not an isolated case. Market data showed that Xinjiang Uygur Autonomous Region in the north and Yunan, Sichuan and Guangdong provinces in the south are suffering the same pain.  
 
"The price hikes are short term. The main reason for shortage is that obsolete production facilities have been eliminated while the construction of new facilities failed to keep up," said Zeng Xuemin, vice chairperson with the standing committee of the China Cement Industry Association. 
 
Under the 11th Five-Year Development Plan (2006-10), 250 billion tons of obsolete facilities are to be phased out before 2010, and 20 percent of that total must be closed this year alone.  
 
Experts said it was not difficult to close outmoded factories. However, the earliest new facilities could only open next year, restricted by the state policy of "new production capacity shall be constructed after and in proportion with the elimination".  
 
In other words, old factories must close before new ones can be built or operate. As a result, shortfalls are hard to make up.  
 
Zeng also warned against a possible round of investment fever fueled by the price hikes, which might lead to oversupplies and more fluctuations in cement prices.  
 
"It will be better if we put construction before elimination. We construct some new capacity first, then eliminate the obsolete facilities gradually. Overheated investment can be curbed by comparatively stable supply. After all, cement prices bear a direct influence on construction costs and downstream industries," Zeng suggested.