Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
ASIA CEMENT CH
HKEx Stock Code : 00743 
 
Corporate Profile
The Group's principal business activities are manufacture and sales of cement, concrete and related products.

Business Review - For the year ended December 31, 2012

Haunted by various negative factors, the global economy in 2012 lacked growth momentum. Against such a backdrop, China's annual GDP growth rate, although still reaching a relatively high level of 7.8%, had significantly slowed down when compared to 2011's 9.2%. Similar situations were found in other economic indicators including fixed assets investment, total import and export amount and real estate investment. The impact of the ups and downs of the economy was deeply felt by the cement sector, which is a pillar industry of China. From January to August 2012, new capacity (40 million tonnes per annum) in the various regions where the Group operated was unleashed. Despite the slight growth in demand, the market was unable to digest such an enormous amount of additional capacity. Moreover, severe price wars had led to the decline in market price, trimming the industry profits by more than 50% when compared to that of the same period in 2011. However, since September 2012, the measures introduced by the Chinese government to stabilise economic growth had significantly driven market demand. While cement enterprises also actively conformed with China Cement Association's call for self-discipline and promotion of energy-saving and emission reduction. As a result, the selling price began to rise. In 2012, cement consumption amounted to 2.2 billion tonnes, up by 7% from 2.06 billion tonnes in 2011.

In 2011, new clinker production capacity of 205 million tonnes was unleashed, and in 2012, there was an additional supply of 90 million tonnes, indicating an aggravation of overcapacity. The government spared no effort to continue to push ahead with the elimination of obsolete production capacities. In 2012, a total of 1,053 backward cement companies, with an aggregate capacity of 270 million tonnes were closed down. The eliminated capacities had reached record high, which significantly helped to ease the pressure of excessive capacity in the cement industry.

The Group is a leading integrated cement manufacturer in the mid and downstream regions of Yangtze River, as well as a major integrated cement producer in Sichuan, with an extensive coverage of sales network. The Group has extended its business to downstream industries, setting up commercial concrete companies in various areas to provide a wide range of choices to consumers. In 2012, the Group increased its production volume through improved production process and better management. Such increase in output volume was realised before the expansion of new production capacity. Sales volume of cement and clinker of the Group for 2012 rose by 5%, from 22,845,000 tonnes in 2011 to 23,881,000 tonnes in 2012. The Group realised a satisfactory profit when compared with other industry players.

Sichuan Region

Almost all the new capacities have been released, but the market demand driven by the post-earthquake reconstruction works has also come to an end. According to the relevant statistics, cement demand in Sichuan Province in 2012 declined by 11% (national demand grew by 7% on average). From January to September 2012, in order to secure market share, industry players engaged in fierce competition, leading to decline in market price and sluggish sales. Since the fourth quarter, driven by the cement association and leading enterprises, market players engaged in energy-saving and emission reduction to suspend production. This together with the market demand brought by the traditional peak season had led to rebound in cement prices, while sales volume rose by certain degrees. In 2012, the Company sold a total of 5,100,000 tonnes of cement, representing a 3% increase when compared to 4,930,000 tonnes in 2011.

Central and downstream regions of Yangtze River The Group's main production and sales areas are located in central and downstream regions of Yangtze River, with convenient water transport by which products can be conveniently and swiftly transported and sold to various markets along the river. In 2012, the markets along the middle and lower reaches of the Yangtze River rebounded after experiencing declines.

1. In the first half of 2012, there were 35,000,000 tonnes of new cement production capacity unfolded in the region. All the cement producers strove to maximise their production and sales volume. Despite the slight increase in market demand, the market was unable to digest the excessive capacities. The price wars among market players with the aim of securing customers caused cement price to plummet. Some players responded to the cement association's call and engaged in market discipline to save energy and reduce emission. However, the effects of short-term suspension of production could not change the downward trend of the overall market. Market prices continued to decline and hit rock bottom in August 2012.

2. Since September 2012, demand gradually rose on robust rural market and government's accelerated infrastructure investment, enabling the market to quickly reduce its inventory level. After three quarters of price war, market players were gradually weakened, and began to engage in energy-saving and emission reduction to suspend production led by the cement association, with satisfactory results. The market price had rebounded from the bottom by RMB90-100 per tonne.

3. Sales volume of cement and clinker of the Group in 2012 reached historical high in these regions, amounting to 17,610,000 tonnes and 840,000 tonnes respectively.




Business Outlook - For the year ended December 31, 2012

1. 2013 is the year where China's new leadership begins. Besides reinforcing various economic measures, the new government will also actively carry out more reforms after it comes to power. As such, the economic vitality in the short run will improve, while the pace of reform will accelerate. In view of the cement industry, the market demand will maintain steady growth. The government will actively push ahead with energy saving and emission reduction as well as structural adjustment, and continue to intensify elimination of obsolete capacity and promote mergers and acquisitions of large-scale enterprises. These are all beneficial to the long-term development of the cement industry.

2. In December 2012, Central Economic Work Conference highlighted the following measures: adjust macro-economic measures to promote sustainable and healthy development of the economy; strengthen agricultural development; and actively and steadily push ahead with urbanization, as well as strive to improve the quality of urbanization. As such, a further relaxation of the PRC government's fiscal policy is expected to be seen in 2013, and more resources will be allocated to fixed asset investment, affordable housing construction and transport infrastructure construction. Small and medium-sized cities and rural areas will have vast potential for development. In addition, since October 2012, the PRC government has accelerated approval of infrastructure projects (construction of railways, highways, airports, urban mass transits and integrated logistic centres). This combined with significant increase in industrial power supply indicates that the market will be stabilized and improved, with strong support for cement demand in near future.

3. The inauguration of new capacity for cement production in 2012 has significantly slowed down, and deceleration is expected to increase in 2013. Meanwhile, the PRC Ministry of Industry required each province and city to report the plan for eliminating obsolete cement capacity in 2013. It is expected that the amount to be eliminated will exceed 200 million tonnes, which may partly help to relieve the problem of overcapacity.

4. In December 2012, China's top two largest cement manufacturers ˇV China National Building Material Company Limited and Anhui Conch Cement Company Limited entered into a strategic cooperation agreement. These two corporations will strengthen interaction and cooperation in respect of energy saving, technology and market coordination in future. The cooperation between these two corporations will significantly boost confidence in the cement market. It also signifies that the industry is gradually shifting from unhealthy competition to healthy competition, and from irrational price war to a more rational approach for mutual benefits.

5. China Cement Association, as a representative of the industry associations, has a well-developed operating structure through close to two years of continuous exploration and improvement. Moreover, the association has also gained wide recognition and respect from industry players. In 2013, the association will continue to play a pivotal role in the aspect of energy-saving and emission reduction, which will facilitate the balance of market and acceleration of eliminating obsolete production capacity.

6. The Group remains confident in all of its developments in future. It will continue to leverage its competitive edge and uphold its business philosophy of ˇ§Integrity, Diligence, Simplicity, Prudence and Innovationˇ¨. It will seize various opportunities and overcome difficulties, as well as strengthening its internal management, with the aim to expand and consolidate its business. The Group will also speed up the construction of Jiangxi Yadong No. 5 and No. 6 new dry process rotary kilns (each has a daily clinker production capacity of 6,000 tonnes) which are expected to be completed and commence operation in 2013. In the meantime, the Group will step up merger and acquisition activities, to further improve its overall market planning, and will strive to achieve the target annual production capacity of 50,000,000 tonnes as early as possible. All in all, by leveraging its existing leading market position and proven track record in aligning its business development strategies with government industry policies, the Group expects its profitability to be improved subject to market conditions.

Source: Asia Cement Ch (00743) Annual Results Announcement
Chairman HSU, Shu-tong Issued Capital (shares) 1,556M
Par Value HKD 0.1 Market Capitalisation (HKD) 5,571M
 
Login
Password
Register  Forget Password
Advanced Search
© 2024 The Standard, The Standard Newspapers Publishing Ltd.
Home | Business | Metro | Focus | Opinion | Markets | World | Sports | Entertainment | Monday Money | Property | Macau | Weekend