Competition in the cement market in Guangdong, Guangxi and Hunan provinces is expected to heat up with the mainland’s largest producer unveiling a plan to put 42 per cent of its new production capacity for the next three years in China’s southern regions. Executive director Guo Jingbin said Anhui Conch Cement aimed to raise its market share in the three provinces from 0.4 per cent last year to 15 per cent in three years.
It plans to build plants with annual capacity totalling 18Mt in the next three years in these provinces, where total annual demand is estimated at 120Mt. "We will take part in the restructuring of the unreasonable product structure in the southern markets by building a few large-scale cement production bases there," Mr Guo said. Company secretary Ms Zhang Mingjing said about 90 per cent of cement sold in Guangdong was made from outdated, environmentally unfriendly and energy-inefficient technologies. "Market forces and government policies will gradually phase out the inefficient producers, some of which will then buy clinkers from us to produce cement," Ms Zhang said.
Anhui Conch’s plan will see it compete with Pearl River Delta-focused China Resources Cement Holdings, which plans to boost output by 57.6 per cent to 5.2Mt this year.
Anhui Conch aims to increase its capacity to 80Mt by 2008 from 37Mt last year, by investing 2.5 billion yuan to three billion yuan annually in facilities. This year, it plans to add 5Mt of capacity in east and south China. Ms Zhang said cement prices had probably reached a trough in the first quarter averaging 190 yuan a tonne, adding this year’s average price might be 10 per cent higher than the current level. She said limited new capacity coming on stream - estimated at 20Mt this year - and a 7 per cent to 10 per cent rise in demand would help lift prices. The industry’s annual output capacity rose 120Mt to 1bn tonnes last year.
"The government has curbed over-investment in rudimentary facilities through credit tightening, land and resource use checks, but we can expand as we are investing in advanced technologies," Mr Guo said. Analysts were however less optimistic. "We do not see anything for us to be bullish. Oversupply, rather than insufficient demand, is the main culprit in the current-cycle problem," Daiwa Securities analyst Geoffrey Cheng Bik-hoi said in a recent research note. Anhui Conch’s average cement selling price had fallen from 277 yuan a tonne in the first quarter last year to 192 yuan in the fourth quarter, according to a Core Pacific-Yamaichi report. "It will take time to squeeze out the rudimentary producers and the capacity expansion by producers using [advanced technology] has been dramatic too," it added. Meanwhile, Anhui Conch aims to raise exports from 1Mt last year to 5Mt this year - of which 30 per cent will go to the United States, a new market for the company.