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Home >> Business
UPDATED: 08:38, March 01, 2006
Cement industry structure to undergo reform
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Attempting to adjust the cement industry's structure, China will continue measures for controlling manufacturing of the material, said National Development and Reform Commission (NDRC), the nation's leading industrial watchdog.

The commission will speed up the elimination of cement production lines with small capacity and outdated technology. It will also order any new project with less than 2,000 tons of daily capacity to apply to the State Council for approval rather than to provincial authorities.

NDRC said China's cement industry experienced healthy growth in 2005, with sales of 260.8 billion yuan (US$32.3 billion) and profits of 8.05 billion yuan (US$1 billion) last year.

China produced 1.06 billion tons of cement last year, 9.3 per cent more than 2004. The growth rate, however, was 3.2 per cent points lower than in 2004.

With active investment in China's cement industry over the past few years, overcapacity has become a pressing issue. As the growth rate slowed down, many cement enterprises suffered losses.

The issue forced the government to encourage rational investment. NDRC said fixed-asset investment in the sector fell 5.1 per cent last year. In addition, there were 116 less projects under-construction and 125 less new projects compared with 2004.

However, the number of loss-making cement companies increased. Last year nearly 36 per cent of the nation's cement producers reported losses, compared to 28 per cent in 2004.

NDRC said the number was a result of the government's restructuring effort. Most of the loss-making companies were those with small production capacity and outdated technology.

"In order to ease the overcapacity, industrial centralization should be heightened," said an official with China Cement Association. According to a NDRC report, by the year of 2010 the number of cement enterprises is expected to decrease to 3,500 with annual scales of 400,000 tons.

Too many small manufacturers exist in the cement industry, the official said yesterday. The current average of the annual scale amounts to 178,700 tons, while in the developed countries the figure is 900,000 tons.

Low industrial centralization is another problem. In 2004, the output of the four largest cement manufacturers in China amounted to 12.24 per cent of the nation's total output. The ten biggest international cement companies contribute one-third of the world's output.

Centralization is to be achieved mainly by mergers and acquisitions, said the official, and some of China's big cement makers have already started their expansion.

Last December, China's largest cement maker, Anhui Conch Cement Co Ltd entered an agreement with two foreign strategic investors, who took stakes in the firm.

The nation's largest building materials manufacturer, China National Building Material Group Corporation, plans to raise US$ 150 million in the initial public offering (IPO) on the Hong Kong Stock Exchange at the end of March.

While the Chinese companies began their expansion overseas, world cement leaders descended on China cement industry.

In August 2005, Lafarge, the world leader in building materials, and Shui On Construction and Materials Limited (SOCAM), the leading cement producer in South West China, announced a joint venture partnership to merge their cement operations in China.

The strategic alliance will establish the new cement leader in Southwest China.

In September 2005, Tangshan Jidong Cement signed agreements with Heidelberg Cement Holding Hong Kong, a wholly owned subsidiary of Heidelberg Cement, to form a 50-50 joint venture to produce and market cement in Shaanxi province of Northwest China.

Source: China Daily

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