Lafarge wants to invest more in China and thinks Beijing’s efforts to cool the booming industry could allow it to buy more factories, a company executive said on Tuesday. The French-based firm has built a plant at Chengdu and bought two others in China for a total cost of $350 million in the last decade. But its total yearly capacity of 3.5Mt is still a fraction of China’s 813Mt production, which is nearly half the world’s cement output.
Company chief operating officer Bruno Lafont told Reuters Lafarge was investing around $40m to add one million tonnes of annual capacity to its plant in the western city of Chongqing and was looking at other regions. "Its a very large market and we absolutely want to be present there," Lafont told Reuters in a telephone interview.
"In Chongqing and Chengdu we want solid market share and we’ll go to new regions," he said. "It will certainly happen in the next five years but we will act cautiously, be selective. It might be large." China’s cement industry has surged in recent years thanks to soaring state infrastructure spending and a property market boom, especially in Shanghai and Beijing. Cement demand jumped 16 per cent in 2003 and Lafarge sees it rising 8-10 per cent in 2004. But fearing overinvestment, especially in building-related industries, Chinese Prime Minister Wen Jiabao told Reuters two weeks ago the government would employ "forceful" measures to cool its economy.
Beijing has told banks to stop lending to cement, steel and property firms, a step Lafont said "might" open up acquisition opportunities for Lafarge. Analysts say the Chinese cement industry is littered with thousands of small-scale firms, producing very cheap but low quality products. A clampdown on lending may force owners to sell these inefficient plants to foreign investors.
"We will see," Lafont said. "It’s not very easy to see all the results of this policy. It depends how it is complied with and how quickly it’s put in place," he said. "We’re ready and we’ll try to make the best of it."
The country’s biggest producer, Anhui Conch Cement Co Ltd, has an annual capacity of around 25Mt. Low margins have been a deterrent for some foreign firms, but one of Lafarge’s global rivals, Swiss firm Holcim , has a 23.4 percent stake in Shanghai-listed Huaxin Cement, which has a capacity of 8Mta.
But Lafont said he expected 10-11 percent returns from Lafarge’s Chongqing, Chengdu and Beijing plants in three to four years, partly because of cost cutting. "We’re not losing money in China," he said. "But it’s quite a difficult and very competitive market." Expansion in China was part of a broader policy to lift Lafarge’s presence in Asia, especially in markets such as India, Malaysia, Indonesia, South Korea and Japan where the firm already has interests, Lafont said.
Lafarge, which has operations in 75 countries, made 10 per cent of its total sales in Asia last year, when it notched up a global operating profit of Euro 1.93bn ($2.35bn).