Recently, some listed companies in the cement industry released their semi-annual performance forecasts. Jidong Cement expects a net loss attributable to shareholders of 740 million to 870 million yuan in the first half of 2024. The company announced that it substantially turned around its losses in the second quarter, mainly due to rising cement prices and its efforts to build low-cost core competitiveness.

The supply side of the cement industry has long been severely oversupplied, which has led to fierce competition in various regional markets. Some cement enterprises take market share as their foundation and are willing to sacrifice part of their profits to stabilize or continuously increase market share, which is one of the reasons for the continuous decline in cement prices. Since the beginning of this year, in order to ease the oversupply pressure and reduce supply, while passing on rising manufacturing costs and improving corporate profitability, many regions have extended the duration of staggered peak shutdowns.

Staggered peak shutdowns to rescue the market

Recently, the three northeastern provinces of Liaoning, Jilin and Heilongjiang notified the cement industry to continue staggered peak shutdowns for 15 days in August. According to Cement People Network, after the staggered peak shutdowns during the heating season, cement enterprises in the three northeastern provinces still insist on shutting down kilns for 15 days each month, making normalized staggered peak production run through every month. In addition to the 3 to 4 months of shutdown during the heating season, another 60 to 80 days of shutdown were added during the May-August period.

According to recent news from Cement People Network, over the past two years, cement enterprises in many places have had annual staggered peak shutdowns exceeding 200 days. In many regions, in addition to the 120 days of staggered peak shutdowns during the heating season, regional staggered peak shutdowns have also been initiated during major events, air pollution-sensitive periods, and summer high-temperature periods.

Staggered production plans for some regions for 2023-2024

Previously, at a relevant meeting of the building materials industry in Hebei Province, all participating cement enterprises stated that they would strictly implement rigid and precise staggered peak production work, support the gradual cancellation of staggered peak exemption policies, and further create an environment for steady growth in industry benefits.

A relevant person in charge of Jidong Cement pointed out that practice in recent years has proven that staggered peak production has played an increasingly important role in the high-quality development of the industry. The Pan-Northeast region's achievement of a substantial improvement in industry benefits through rigid staggered peak production is a very good example.

During the downturn in which demand in the cement industry continues to weaken, only rigid and precise staggered peak production can effectively ease the supply-demand relationship and ensure reasonable benefits and healthy development of enterprises. It is recommended to further reduce the staggered peak production exemption policy in Hebei Province, and Jinyu Jidong Cement will take the lead in setting an example.

Sand and gravel, and concrete enterprises are optimistic about "staggered peak production"

As part of the same building materials industry chain as the cement industry, in recent years, with the downturn in the real estate industry, the sand and gravel and commercial concrete industries have also entered an era of overcapacity, and the operating performance of relevant enterprises has continued to decline.

Overcapacity in the building materials industry is universal and long-term. Without more than ten years of "sifting sand from the waves," survival of the fittest, and reshuffling, it will not be easy to emerge from the predicament. Facing the current dilemma of the sand and gravel and concrete industries, calls have arisen to "follow the example of cement enterprises and implement staggered peak production."

The above industry insider said that the original intention of this idea is good and conforms to market rules. However, for the sand and gravel and concrete industries, "staggered peak production" is not realistic and may not be a panacea; if handled poorly, it could be a beautiful trap. Blindly copying the cement industry's "staggered peak production" model and using it to misjudge and guide the future development model of the industry could be a disaster for the entire industry.

As for the cement industry, at present, cement enterprises in many regions have low operating rates and are plagued by full warehouses, with cement kilns in a state of frequent startup and shutdown for a long time. In some regions, even with more than 200 days of kiln shutdown throughout the year, cement prices have not rebounded. Although staggered peak production is a temporary measure and some enterprises may benefit, it cannot truly ease the overcapacity pressure of the entire industry.

An increase in the number of days of kiln shutdown and production restriction means that the operating rate of production lines will further decline. Over the past decade, the overall capacity utilization rate of production lines in the cement industry has remained between 30% and 55%, and has shown a downward trend year by year. More than 200 days of kiln shutdown a year and an operating rate of about 30% not only increase hidden costs, but also, accompanied by declining cement prices, may further expand the scope of corporate losses.

Cement sales volume and price both fall

Recently, many listed companies in the cement industry released performance forecasts for the first half of 2024:

Tapai Group expects net profit attributable to shareholders of 219 million to 243 million yuan in the first half of 2024, a year-on-year decrease of 50% to 55%. The reason for the change in performance is a year-on-year decline in profit from the main cement business. In the first half of this year, affected by the continued decline in real estate investment and insufficient funds in place for infrastructure projects, downstream cement demand recovered slowly. This trend became particularly pronounced after the Spring Festival, and the decline in cement demand expanded significantly. In addition, prolonged and sustained rainfall in South China in the second quarter greatly affected construction, further weakening cement demand, further intensifying the contradiction between cement supply and demand, and making market competition fiercer. The company's cement sales volume and price both fell. During the reporting period, cement sales volume decreased by about 15.2% year on year, and cement sales prices decreased by about 20.9% year on year.

Thanks to declines in the procurement prices of coal and other raw and fuel materials and in labor costs, the company's average cement sales cost during the reporting period decreased by about 15% year on year, but this was smaller than the decline in the company's cement sales prices during the reporting period, resulting in a year-on-year decline in the company's overall gross profit margin and a corresponding decline in the profitability of the main cement business. Combined with the impact of a year-on-year decrease of about 15.2% in cement sales volume and a year-on-year decrease of about 20.9% in cement sales prices during the reporting period, the company's overall gross profit margin declined year on year, and the profitability of the main cement business declined accordingly.

Tianshan Cement stated that in the first half of the year, prices of major raw and fuel materials such as coal fell year on year, and the costs of cement clinker and commercial concrete fell year on year; affected by weak market demand and sharp declines in the prices of cement and commercial concrete, the gross profit margins of cement clinker and commercial concrete fell year on year.

Ningxia Building Materials expects net profit attributable to shareholders of 46 million to 60 million yuan in the first half of 2024, a year-on-year decrease of 60.4% to 69.64%. The reason for the change in performance is that in the first half of 2024, affected by insufficient regional cement market demand, the company's sales volume and prices of main product cement declined year on year. Although unit costs decreased, this failed to offset the adverse effects of declines in sales volume and prices.

BBMG Group expects a net loss attributable to shareholders of 750 million to 950 million yuan in the first half of 2024. The main reason for the year-on-year decline in performance is that overall effective demand for cement was weak. Sales of cement and clinker were 38 million tons, a decrease of 5.96 million tons from 43.96 million tons in the same period last year, a decline of 13.2%. The company took multiple measures to strive to reduce costs and raise prices, but these were temporarily insufficient to offset various adverse effects, resulting in an expanded operating loss in this reporting period compared with the same period last year. In the first half of the year, real estate policies were continuously optimized and regulation in core cities was relaxed, but sales continued to bottom out and adjust, remaining at a low level. During the reporting period, the area of real estate development business carried over by the company was about 396,000 square meters, a decrease of 113,000 square meters from 509,000 square meters in the same period last year, a decline of about 22.2%.

Yatai Group expects to achieve a net profit attributable to owners of the parent company of -800 million to -950 million yuan in the first half of 2024. The main reason for the change in performance is that during the reporting period, cement market demand shrank and competition intensified. The company's production and sales of cement and other products decreased year on year, cement selling prices rose year on year, clinker selling prices fell year on year, and the overall gross profit margin of building materials products remained low. During the reporting period, the real estate industry was still in a state of deep adjustment, and real estate products faced pressure on both volume and price. The company dynamically adjusted its sales strategy according to market conditions, intensified destocking efforts, and the gross profit margin of carried-over projects remained low. During the reporting period, net profit of the company's important associate Northeast Securities Co., Ltd. decreased, resulting in a relatively large year-on-year decline in investment income.

Fujian Cement expects a net loss of about 105 million yuan in the first half of 2024, with the loss reduced by about 27.4 million yuan. The reason for the change in performance is that cement market demand continued to be sluggish, the supply-demand contradiction intensified, and cement prices moved downward at a low level. The company's cement (including commercial clinker) sales volume decreased by 14.98% year on year, operating revenue decreased by 30.71% year on year, and the company's main business remained in a loss state year on year.

Shangfeng Cement expects net profit of 160 million to 180 million yuan in the first half of the year, a year-on-year decrease of 69.89% to 66.13%. The year-on-year decline in prices of main products cement and clinker is the main reason affecting the decline in profit in this reporting period.

Jianfeng Group expects net profit attributable to shareholders of 38 million to 56 million yuan in the first half of 2024, a year-on-year decrease of 49.83% to 65.96%. The main reasons for the change in performance are: during the reporting period, cement demand was weak and market competition was fierce; the company's cement product sales volume and prices declined year on year, and revenue and gross profit margin declined year on year; during the reporting period, sales of the company's pharmaceutical products declined, competition in the markets for intermediates and pesticide products further intensified, selling prices continued to move lower, and gross profit margin declined.

Tibet Tianlu expects a loss of 60 million to 99 million yuan in the first half of 2024. In the first half of this year, Tibet Tianlu's main business still faced relatively great pressure. The announcement shows that in the construction segment, due to intensified competition in the Tibet construction market, the company's existing projects were completed one after another, incremental projects were limited, and operating revenue declined significantly year on year. In the building materials segment, due to the overall weakness of effective demand in the Tibet cement market and fiercer market competition, the company's cement sales volume and prices declined year on year; in addition, Tibet cement enterprises are highly dependent on out-of-region supply for resources such as coal, leaving limited room for cost reduction, and cost reduction can hardly offset the impact of price declines. 

It is also understood that low-cost leading enterprise Conch Cement produced about 800,000 tons in April and May, and about 700,000 tons in June, both lower than the normal level of 900,000 tons. Its gross profit in April was flat with the first quarter, and in May was between 55 and 60 yuan. Compared with 2022, when cement gross profit was 90 yuan per ton, this is a decline of more than 30%. During the same period, net profit per ton, affected by expenses, is estimated at around 30 yuan overall.

During April and May in the second quarter, Conch Cement tried to raise cement prices in various regions, but due to the rainy season, the price increases could not be sustained. In the Yangtze River Delta region, the company's core market, cement prices attempted to rise but ultimately fell back. Current enterprise inventory is about 60% to 70%, the highest point of the year. At present, about 50 clinker lines are in staggered peak shutdown, and nearly two-thirds of production capacity has not been released. On the one hand, prices have not risen substantially, combined with insufficient capacity release; on the other hand, gross profit continues to decline and per-ton profit decreases. The performance of Conch Cement's main products is likely to be affected.

Cement industry output is equivalent to demand. Since 2024, national cement demand has continued to decline sharply on the basis of consecutive declines in the previous two years. From January to May, cumulative national cement output fell 10.9% year on year. Raising prices while output declines may be the **only "lifeline" that cement enterprises can grasp at present.