Loss-making cement firms rise in spite of growth

Loss-making cement firms rise in spite of growth
Published: 28 February 2006

China’s cement industry experienced healthy growth in 2005 despite rising energy costs and lower prices due to more efficient labor. The number of loss-making companies, however, increased.

The sector made "breakthrough progress" in restructuring last year and China will continue to tighten approvals of production lines with small capacity and outdated technology, the National Development and Reform Commission said on its Website over the weekend.

The industry had sales of CNY260.8bn  (US$32.3bn) and profits of CNY8.05bn  last year, the top planning body said. In 2004, the figures were CNY228.9bn  and CNY13.6bn  respectively, according to the China Cement Association.

Heavy investment in the sector in recent years has created a nationwide glut that has forced the government to implement macrocontrol measures to curb the situation.

The country produced 1.06bn tons of cement last year, 9.3 per cent more than a year earlier. The growth rate, however, was 3.2 percentage points lower from 2004.

Fixed-asset investment in the sector fell 5.1 per cent last year. In addition, there was 116 less under-construction projects and 125 less newly-started projects compared with 2004.

Based on these figures, the commission said the investment "tends to become rational" in the domestic market.

However, the number of loss-making cement companies rose as a result of the government’s restructuring effort.

In 2004, 28 per cent of the nation’s cement producers reported losses. The figure was 36 per cent last year.

The commission said the unprofitable companies were those with small production capacity and outdated technology.

In its work plan, the commission said it will speed up eliminating those small lines and order any new project with less than 2000t of daily capacity to apply to the State Council for approval rather than the provincial authorities.