Loss of cement companies in the second quarter

In the second quarter of 2010, the cement industry experienced recovering growth, and the industry’s revenue increase was even more effective. According to the China Industrial Economic Indicators Index, the sales revenue of cement products in the second quarter of 2010 was 238.70 billion yuan, an increase of 55.20 billion yuan from the previous quarter; an increase of 26.1% year-on-year. The increase in cement revenue was mainly due to the increase in the price of cement.

In addition, the overall profitability of the cement industry has improved. The total profit of the cement industry in the second quarter was 13.89 billion yuan, a substantial increase of 6.86 billion yuan from the previous quarter. With the construction industry entering the peak season, the profitability of the cement industry has improved significantly. However, with the overall improvement in profitability, the company's loss year-on-year increase has increased. In the second quarter, there were 2,525 loss-making enterprises in the cement industry, and loss-making enterprises suffered a loss of 1.97 billion yuan. Although the amount of losses decreased by 1.89 billion yuan from the previous quarter, the amount of losses increased by 35.7% compared to the same period of last year. This shows that in the national policy of eliminating backward production capacity and the reorganization of cement companies, the profitability of small and medium-sized cement companies needs to be improved.

Affected by such factors as the successive implementation of regional development planning and market access threshold improvement, it is expected that the business environment of the cement industry will further improve in the second half of the year, and the supply and demand of cement will be further improved.

According to statistics, China's cement production in the second quarter of 2010 was 512.62 million tons, a year-on-year increase of 14.7%. The analysis shows that in the process of accelerating urbanization, the agglomeration effect of regional development planning is expected to stimulate the rapid growth of regional cement demand.

From the perspective of the regional development plans that have been launched, we have taken into consideration the advantages of the coastal areas while taking into consideration the central, western, and northeast regions. The implementation of regional development plans means that infrastructure construction in the relevant regions will set off a new round of climaxes. The development of large-scale infrastructure such as roads and railways will drive the growth of cement demand, and will inevitably bring benefits to cement companies in the relevant regions. According to the data, the year-on-year growth rate of cement production in the second quarter of 2010 dropped by 7.2% from the previous quarter, and the pace of cement capacity expansion slowed down. Taking into account the large base of cement production in the second half of 2009, the cumulative growth rate of cement production in the second half of 2010 will slow down.

Since the beginning of this year, policies and measures to eliminate backward production capacity have been frequently introduced and efforts have been significantly increased. At the national teleconference on energy saving and emission reduction held in May this year, it is required to eliminate 50 million tons of backward cement capacity during the year. The task must be implemented in all regions and enterprises before the end of May. On May 27, the Ministry of Industry and Information Technology significantly increased the obsolete cement production capacity elimination target and requested to ensure that it shut down 91.55 million tons of backward cement capacity before the third quarter of this year.

Based on this calculation, China will at least eliminate 100 million tons of backward cement capacity in 2010. Considering that the new dry process cement production capacity project has been approved on September 1, 2009, an effective capacity of about 250 million tons will be formed in 2010. It is estimated that the net new dry process cement production capacity in 2010 will be about 150 million tons, and the new dry process in 2010 will be completed. The increase in cement production capacity will reach 9%, and the regional market will experience a phased oversupply of cement.

It is understood that relevant state departments are formulating relevant policies and measures to promote cement and other industries to accelerate the process of mergers and reorganizations. Industry analysis shows that as the difficulty of incremental expansion increases, the cement industry will focus on entering the stock reorganization phase. The intensity of industry mergers and reorganizations will increase, and the industry's concentration will gradually increase.