Cement Province Meets Staggered Peaks Intensively; Prices Rise Slightly in the Fourth Quarter

In the middle of November, the heating season in the north is coming, and cement enterprises around the country are also welcoming the winter peak shift. Recently, Henan, Shandong and other major cement production and marketing provinces have successively issued notices on off peak production of the cement industry, and the industry supply reduction is expected to increase again.
In the first three quarters, the profit of the cement industry declined sharply against the background of the simultaneous decline in quantity and price. Since the fourth quarter, the price of cement in many places has rebounded, and the production and operation of enterprises are expected to improve.
Cement warms up slightly in the fourth quarter
After a deep fall in the third quarter, the domestic cement market finally saw signs of recovery in the fourth quarter.
The data shows that the price of domestic cement market will bottom out in July 2022, reaching 377 yuan/ton. Due to the excessive decline in July, the market continued to rise in August and September, and the overall price fell by 17 yuan/ton in the third quarter. After entering the fourth quarter, the market price continued to rise in October and November, but the increase was not large.
On November 3, 2022, the national P.O42.5 cement market price will be 406 yuan/ton, 3 yuan/ton higher than the previous week. The same period last year was 579 yuan/ton, with a price difference of 173 yuan/ton (187 yuan/ton last week).
In the first three quarters of this year, the cement industry as a whole showed a situation of both quantity and price falling.
According to the data of the National Bureau of Statistics, from January to September 2022, the national cement output will be 1.563 billion tons, a year-on-year decrease of 12.5%. At the same time, from January to September this year, the overall price of thermal coal fluctuated upward, and the average price was much higher than that of the same period last year. From January to September 2022, the average spot price of thermal coal was 1270 yuan/ton, up 35.6% from the same period last year.
According to the data, the average price of cement market across the country this year has continued to fall from the high of 594 yuan/ton in the fourth quarter of last year to 423 yuan/ton in the third quarter of this year, a decline of 29%.
According to the third quarter reports issued by listed companies in the cement industry, 19 companies achieved profits in the first three quarters of this year, and 2 companies suffered losses. Among profitable enterprises, the net profit of 17 enterprises decreased, with 5 enterprises decreasing by more than 50%.
The industry's profitability has shrunk significantly, mainly due to the combination of factors such as the sharp decline in demand, low price and high cost operation.
Statistics show that the gross profit rate of China's cement industry will exceed 25% from 2018 to 2021. In the first three quarters of this year, the gross profit rate of the national cement industry was about 14%, about 7-11 percentage points lower than that in the same period of the previous two years, which is the low level of gross profit rate in the same period since 2017.
Successive startup of kiln shutdown during peak shift in winter
Recently, many provinces have gradually started to shut down kilns at peak load shifting, which has eased the inventory pressure of industrial enterprises, and has become the main factor supporting the overall stability and upward trend of cement prices in the near future.
On November 7, the Department of Industry and Information Technology of Henan Province and the Department of Ecological Environment jointly released the Notice on the Implementation of Peak Shift Production in the Cement Industry of the Province from 2022 to 2023. The implementation scope includes all cement clinker production lines in the province (excluding cement grinding process and grinding station).
The Notice proposes that peak shift shutdown will be implemented during the heating period from November 15, 2022 to March 15, 2023.
Among them, the cement clinker production line, which undertakes the heating task for residents, implements the principle of "heat based production", and operates according to low production load on the premise of ensuring the heating task; The calcium carbide slag production line will be used for off peak production from November 15, 2022 to December 31 of the same year.
Then on November 8, the Department of Industry and Information Technology of Shandong Province and the Department of Ecological Environment jointly issued the Notice on Organizing the Normalized Off peak Production of Cement in the Heating Season 2022-2023, specifying that all clinker production lines (including special cement clinker production lines) of cement clinker enterprises in the province will implement off peak production from 0:00 on November 15, 2022 to 24:00 on March 15, 2023.
Under the background of weak supply and demand in the industry, the off peak production of each province has been strengthened this year.
Before Henan and Shandong, in late October, the Ningxia Department of Industry and Information Technology and the Department of Ecological Environment issued the Notice on the Implementation of Off peak Production in Some Key Industrial Industries in Winter and Spring 2022-2023, which clearly stated that the off peak time was from November 1, 2022 to March 10, 2023. All cement clinker production enterprises were required to perform off peak production for 130 days, and the number of days that failed to complete off peak production within the time limit would be supplemented by the end of June 2023.
According to incomplete statistics, since November 1, Ningxia, Xinjiang and other places have implemented a new round of peak shift shutdown plan. The cement enterprises in Sichuan, Hunan, Heilongjiang and other places began to stop production in mid October.
Peak shift production in the cement industry also complies with the requirements of China's carbon peak target.
On November 7, the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Ecology and Environment, and the Ministry of Housing and Urban Rural Development jointly issued the Implementation Plan for Carbon Peak in Building Materials Industry. The Plan mentioned that the peak shift production of cement should be improved. Classified guidance, difference management and control, precise implementation of policies and arrangements for staggered peak production, promote the orderly development of nationwide cement staggered peak production, and effectively avoid the superposition of cement production emissions and heating emissions.
Corporate profitability is expected to improve
Although the real estate investment continued to be sluggish, and the supply of stagger production was expected to shrink, the cement market performance in the fourth quarter was still not optimistic. However, compared with the previous three quarters, the industry profitability in the fourth quarter may have improved.
According to the data, it is expected that the market will be basically stable in November. With the beginning of peak shift, the cement prices in various regions will rise and stop falling. It is expected that the cement prices in November will be largely stable and slightly volatile, and the prices in central China will fall by 10-30 yuan/ton.
According to the analysis, in November, the number of provinces in northern China entering the phase of peak shift and kiln shutdown in winter increased, and the supply pressure eased slightly, but the cement inventory remained at a high level under the influence of weak demand. In the short term, the demand in the north is declining, while the demand in the south is still sustainable. It is expected that the rise in cement prices will be mainly concentrated in the south, and the national cement prices will show a situation of rising and falling; The profit of cement in the third quarter may have basically reached the bottom. Since October, the weak recovery of demand and the upward repair trend of prices have been more obvious. The superimposed physical workload of infrastructure has formed or provided some support for cement demand. Under the pressure of staggered production and superimposed costs, cement enterprises are more willing to raise prices. The profitability of cement enterprises in the fourth quarter may improve on a month on month basis, but due to the high base in the fourth quarter of last year, there is still some pressure on the year-on-year situation.
On November 9, Conch Cement said at the performance briefing that, under the background of steady growth of infrastructure investment throughout the year, the overlapping building guarantee policy and the real estate rescue fund were gradually implemented, and the cement market demand in the fourth quarter was expected to achieve positive growth year on year, while the annual demand decline narrowed. At the same time, with the increase of peak shift production, the dual control of energy consumption tends to be reasonable, the impact of imported resources decreases, and the supply-demand relationship in the fourth quarter will be restored and improved; On the cost side, the cement production cost is expected to remain high, and the benefit growth is facing challenges.
At the recently held Top 50 High level Forum of the cement industry, Xiao Jiaxiang, President of New Tianshan Cement, predicted that the peak demand season in the fourth quarter would not be strong, and the month on month growth would be basically flat (based on the demand decline in the same period last year). From the perspective of trend, the demand is difficult to improve in the short term, but will show a steady decline in the medium term, and will decline significantly in the long term.