Self-rescue has become the keyword for the cement industry in Southwest China. "Overcapacity and profits hitting bottom are indisputable facts," said Kong Xiangzhong, Secretary-General of the China Cement Association. The white-hot, vicious competition triggered by overcapacity in the Southwest region's cement industry has seriously endangered the survival of enterprises and the healthy development of the industry.

　　The reporter learned that since 2007, the production capacity of Chongqing's cement market has doubled. In 2013, overcapacity is estimated at around 25 million tons, with an overall operating rate of 60%. Meanwhile, the vicious competition bred by cement overcapacity is also undermining the price mechanism of the Chongqing market.

　　Too Many Production Lines Approved in a Concentrated Period

　　June to August is traditionally the off-season for Chongqing's cement industry each year, but this year's "off-season" has evidently arrived earlier.

　　"Not to go too far back—take 2011, for example. We only shut down our kilns for about 20 days in the hottest July, but this year we have been shutting down intermittently since late May." Peng De (pseudonym), who has worked in the industry for nearly 10 years, clearly feels that the market is tough this year.

　　In fact, the reporter learned from sources at the Chongqing Cement Association that Peng De's factory is not an isolated case. "At present, the overall operating rate of cement enterprises in Chongqing remains at only about 60%."

　　According to data provided by Ma Zemin, Secretary-General of the Chongqing Cement Association, in 2012, Chongqing's total cement production capacity reached 76 million tons, with cement output of 52.76 million tons, up 4.41% year on year. However, the entire industry lost 105 million yuan, with 39.32% of enterprises operating at a loss, making it the biggest loss-maker among all provinces and municipalities nationwide.

　　"From January to April this year, Chongqing's cement industry lost another 13.5 million yuan," Ma Zemin said. The fundamental reason why Chongqing's market conditions are worse than the national average is that too many production lines were approved in a concentrated period over the past few years. "In 2007, Chongqing approved 12 new dry-process production lines; in 2008, another 16; and in 2009, 10 production lines. These figures are staggering."

　　Enterprises Engage in Low-Price Dumping

　　Wang Hongcheng is a sales manager at a cement company in Hechuan, Chongqing. "In March, a construction boss from a district in Chongqing negotiated with us and offered a floor price of 270 yuan/ton. But at that time the market price was 300 yuan/ton, so we refused," he said.

　　What Wang Hongcheng did not expect was that cement prices in Chongqing would hit new lows in the following months. According to data provided by sources at Southwest Cement, in March this year, the price of "No. 400 cement" was about 300 yuan per ton, 280 yuan/ton in April, and was lowered again to 260 yuan/ton in May.

　　It is worth noting that while terminal market prices are being lowered, production costs remain high, and the profit margin of the cement industry has fallen sharply. "In 2012, the total profit of Chongqing's cement industry was -105 million yuan, ranking last nationwide," Ma Zemin said.

　　In fact, the reporter learned that the above cement prices in the Chongqing market exist only "on the surface." To clear inventory, many enterprises have resorted to low-price dumping and price wars. Especially among many small enterprises, their quotations are basically close to cost price.

　　"The actual transaction price for some cement in Chongqing has now reached 210 yuan/ton," an industry insider who declined to be named told the reporter. Even so, sales are equally disheartening.

　　"Compared with other industries, cement is a short-haul product with high homogeneity. Under the major premise of overcapacity, if industry coordination cannot be achieved, it is very easy to fall into a vicious price war," said Kong Xiangzhong, Secretary-General of the China Cement Association.

　　Chongqing Cement Enterprises Frequently Involved in "Subsidy Fraud"

　　In fact, overcapacity in the cement industry has already attracted great attention from relevant national ministries and commissions. Recently, in the 2013 task targets for eliminating outdated production capacity issued by the Ministry of Industry and Information Technology, Chongqing is required to eliminate 1.5 million tons of cement capacity. However, it is worth noting that this policy has become a money-making avenue for many cement enterprises.

　　The reporter learned that in the "Table of Problems and Rectification Regarding Violations in the Use of Funds Found in the Audit of 348 Energy Conservation, Renewable Energy, and Comprehensive Resource Utilization Projects" published by the National Audit Office on June 20, about 60 were cement manufacturing enterprises, accounting for nearly 20%, involving more than 82 million yuan in subsidy fraud. Among these approximately 60 cement enterprises, 18 were Chongqing enterprises, accounting for 30%, involving 14.88 million yuan in subsidy fraud.

　　"For cement enterprises, subsidy fraud is a risky way to seek money, and to some extent it is also forced," the above industry insider said bluntly. The pressure brought to manufacturers by severe market saturation, low prices, and continuously declining profit margins is hard for outsiders to appreciate.

　　As a result, on June 26, heads of the China Cement Association and cement associations from four provinces and municipalities in Southwest China, along with the bosses of 17 cement enterprises, gathered together to seek countermeasures for how to survive in the future. When speaking, the enterprise leaders all without exception admitted that "the pressure is great," and "raising prices and no longer approving new production lines" became the industry consensus.

　　In Kong Xiangzhong's view, the effective way to curb the vicious price war is mergers and reorganizations. "If the top ten cement enterprises in a region account for more than 70% of production capacity, then as long as everyone coordinates with each other on prices, an increase will be just around the corner."