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China's cement industry in supply glut

By Yu Hongyan (chinadaily.com.cn)
Updated: 2009-06-11 13:55

Banking on the government's stimulus package on infrastructure construction, China's cement makers are flocking to extend output capacity, which is now leading the industry into a supply surplus.

China's current cement production capacity totals 1.7 billion tons, 300 million tons of which are in excess. Meanwhile nearly 40 percent of the overall production capacity is being processed through laggard technique, according to the 21st Century Business Herald.

The country's cement output ran up to 429 million tons in the first four months this year, an increase of 10.2 percent year-on-year, according to Zhang Renwei, chairman of China Building Materials Federation.

Related readings:  'Green building' crucial to world's biggest cement producer  Cement, steel firms slow down  Cement firms may hold on to gains  Chinese share up 0.38%, led by cement, machinery shares

Zhang warned industry majors of a supply glut in certain regional markets at an industry forum on June 9.

Prior to that, various cement makers in Zhejiang had jointly begun their 12-day cessation of operations, thanks to the oversupply and price doldrums in the province.

The eastern province's cement industry boasts 88 new dry-process production lines, which are able to produce 84 million tons of clinker and 160 million tons of cement, far above the region's total need of 100 million tons, according to the China Business News.

Cement prices in southwestern Sichuan province plunged to about 400 yuan per ton in May, down from the 500 yuan per ton .in the previous month, according to a Chengdu-based industry information provider for cement makers.

For the reconstruction of the Sichuan quake zone, the China Cement Association suggested in its research last year that a reasonable cement output capacity should be around 50 million tons.

But due to major cement producers coming to the rescue after the quake struck last year, there will be 116 cement production lines in Sichuan by 2011, producing 220 million tons of cement a year, according to the 21st Century Business Herald.

"Judging from the current situation, oversupply would be the major headache for the cement industry in Sichuan in two years," Kong Xiangzhong, secretary of the China Cement Association, was quoted as saying.

To ease the imbalance across the industry, Zhang Renwei, chairman of the China Building Materials Federation, suggests local governments step up to control the total output capacity within certain regions and cut off excessive capacity.

As there are currently 5,500 cement producers scattered across China, Zhang also suggests industry giants acquire inferior enterprises.