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Cement firms pin hopes on reconstruction


Hard-pressed by fierce competition from hundreds of small producers in central China and the prosperous coastal regions, several large cement makers are investing heavily in the western region in anticipation of strong demand arising from the government-led reconstruction of the areas stricken by the earthquake on May 12, 2008.

Shenzhen-listed Tangshan Jidong Cement said it has invested in two new production facilities in Southwest China's Chongqing municipality, while Hubei-based Huaxin Cement Co said last week it plans to raise 4 billion yuan through a private placement of shares to fund its capacity expansion in Southwest China

The Anhui-based Conch Cement, China's largest cement maker, said in a filing to the Shanghai Stock Exchange that it is investing 1.2 billion yuan of the capital it raised to support its expansion in Southwest China.

The collective investments in the western region are apparently based on the projected increase in demand for construction materials, particularly cement, for rebuilding of infrastructure and houses destroyed by the quake.

The government estimated that at least 1.26 million rural houses and 312,500 urban houses will need to be built in Sichuan province and another 1.41 million units to be reinforced. What's more, a total of 9,145 schools will have to be rebuilt in the quake area.

The province has begun construction of 681 infrastructure projects and more are expected to start in the next few months.

Chinese Premier Wen Jiabao said in his annual government work report to the legislators earlier this month that one quarter of the government's 4-trillion-yuan economic stimulus will be spent on the reconstruction of the quake-hit Sichuan province in western China in the next two years.

Wei Hong, vice-governor of Sichuan province, said at a press conference this month that his province needs 1.7 trillion yuan for the reconstruction, with 72 percent of the reconstruction work expected to be finished within the year.

"Cement makers are now betting on the western market for further development, as competition is already intensifying in the eastern market," said Chen Bailin, deputy general manager, Digital Cement, a consulting firm under China Cement Association.

The National Bureau of Statistics said the country produced 159 million tons of cement in the first two months of this year, up 17.03 percent year-on-year.

During the same period, investment in the industry grew 87.63 percent from a year earlier to 8.87 billion yuan, according to statistics from Digital Cement.

In the past few months, the government economic stimulus package has spurred a construction boom, as reflected by the year-on-year 26.5 percent increase in urban fixed asset investment to 1.027 trillion yuan in the first two months of this year.

However, Han Qincheng, analyst, Guotai Junan Securities, said in a report that it would be more credible to judge the trend based on figures of March and April, as the industry had ground to a halt in the first two months of last year.

Cement prices have been tumbling in the first two months, with prices in Hangzhou dropping as much as 11.11 percent year-on-year.

Analysts believe that the price reduction came after small cement plants flooded the market with low-quality cement products. Production at the 261 major cement makers climbed only 5.3 percent to 44.24 million tons in the first two months, far below the country's average growth rate, according to BMI, a website under China Building Materials Federation.

But with the construction of major infrastructure projects going ahead, high-quality cement would be in demand with prices expected to remain steady later, said Wang Xiaoliang, analyst, Digital Cement.


http://www.chinadaily.com.cn/cndy/2009-03/19/content_7593369.htm