China: consolidation on production capacity by 2020

The China Cement Association (CCA) has advised that the merger of leading cement companies will likely concentrate the industry’s capacity, informing that government that by year end 2020 more than 60 per cent of production capacity would be controlled by the top 10 companies.

President of the CCA, Qiao Longde, said, “there are too many cement enterprises, which makes it very hard to utilise resources effectively." The industry is experiencing low efficiency and fragmentation as most plants are small and scattered, lacking high-level technology and management expertise.

China has more than 3500 cement enterprises, with the top 10 holding a combined 54 per cent of total production capacity. This has led to aggressive competition and multiple price wars. The State Council issued a notice in May 2016 stating that the top 10 companies should account for 60 per cent of the country’s total output.

In August the Assets Supervision and Administration Commission of the State Council approved the merger of China National Building Material Group Corp and China National Materials Group Corp. The new company has total assets of CNY550bn (US$82.1bn), making it the largest building materials company in China.

The Chairman of China National Building Material Group, Song Zhiping, commented: “The industry's capacity this year is around 3500Mta while the sales have been around 2400Mta in the recent two years. The capacity has exceeded demand by 30 per cent. We need higher capacity concentration."

He went on to address the issue of low-standard cement as a further issue plaguing the Chinese industry. "The Mark 32.5 cement should be eliminated. Most of the countries in the world use Mark 42.5 cement and above. This is only to be achieved by eliminating outdated capacity." Mark 32.5 cement accounts for 60 per cent of the Chinese market.

Upcoming merger

Beijing-based NBMG Corp and JiDong Development Co Ltd, based in Tangshan, Hebei Province, are the two largest cement enterprises in the Beijing-Tianjin-Hebei region. The two companies signed an agreement regarding an asset and share merger in April 2016. JiDong ranked fourth for production capacity in China in 2015, while NBMG ranked ninth. If the merger is pushed through the new company will have a capacity of more than 110Mta, ranked it third in the country.