China With Its Overcapacity In Cement Production Looks To African Markets

By Kunal Bose

The world’s two leading cement producing countries China and India had a few common negative experiences last year resulting principally from falling demand from the infrastructure sector. At all times, at what rate, highways to sea ports to airports will be built will remain a government decision in the two countries to fund new projects. Beijing policy of the past has resulted in the country, the world’s second largest economy after the US already having a fairly robust infrastructure. As a result, the materials that go into building infrastructure from cement to steel to aluminium have all started feeling the impact of demand saturation. To add to the distress of cement makers, China’s property market remains mired in a crisis, resulting from overspeculation by the likes of Evergrande, Country Garden and Sunac defaulting in repayment of borrowings.

Debt financed oversupplied building market is seeing falling demand from buyers unsure of investment fate. Infrastructure and building construction being the two principal cement user sectors, shrinking demand there could only result in fall in capacity utilization, margin erosion and adverse working of cement groups. This has been much in evidence with the Chinese cement industry coinciding with the country settling down to a low rate of GDP (gross domestic product) growth. An industry carrying the load of a huge surplus capacity in the face of the economy seeking stimulus from the government, the China Cement Association (CCA) describes the situation as a “continuous decline in demand, low price fluctuations and continuous losses in the industry.”

Referring to the falling production graph of cement, inevitable in the difficult economic situation, the country’s National Bureau of Statistics says, output of the binding building material fell from 2.36bn tonnes in 2021 to 2.13bn tonnes in 2022 and then further to 2.02bn tonnes in 2023. Besides the property market crisis, which is not compensated by any upsurge in infrastructure investment, a falling population and squeezed middle class continued to weigh on the cement industry in 2024 when production stepped back by 9.8% to 1.825bn tonnes. This meant capacity use last year was down to 50% from the year before 56%. The last few years’ performance shows a significant fall from the peak production of 2.5 trillion tonnes between 2002 and 2014 when infrastructure and real estate development claimed high investments. In a big country like China or India, cement capacity is regionally dispersed to avoid cost of transportation over long distances by either road or rail. Last year, significant declines in cement production happened in China’s northeast, northwest and central and south regions.

The deteriorating Chinese scene has prompted International Cement Review to forecast: “Production at large-scale plants is likely to continue to be substantially reduced while strong domestic competition and decarbonisation targets will add pressure to unsustainable operations, resulting in more closures in 2025.”Rating agencies such as Fitch have had occasions to downgrade leading Chinese cement groups in the face of falling margins, negative free cash flow and increasingly higher leverage. There is a consensus among experts and also in the government that the industry is now paying the price for building of overcapacity over the past many years and not all of that energy efficient and environment friendly.

The move by some industry constituents to go on building capacity abroad, including in African countries despite setback in working in their core domestic market has invited frowns from rating agencies. Though exact figures are difficult to come by, China observers believe that the industry is sending some locally produced cement for use in Beijing sponsored overseas construction projects. In pursuit of expanding its spheres of influence across the globe – the 2013 launched belt and road initiative, also known as the new silk road focussing on infra building in countries in all the continents speaks most loudly of Chinese political ambition –Beijing comes under pressure particularly from poor but resources rich countries to build factories there for local value addition.

Besides compulsions to invest in faraway African countries, richly endowed with limestone, clay and marl, the Chinese cement groups must also have considered that an overseas production foothold would spare them the challenge to organise shipments of the bulk cargo, which is susceptible to moisture and quality deterioration over time in specially built carriers. In spite of logistical challenges to move cement by waterways and the cost involved, the seaborne trade in the material is around 180m tonnes out of seaborne movement for all items at 12.3bn tonnes in 2024. This includes a historic milestone of 5.6bn tonnes of dry bulk cargo.

Besides the negative impact on cement demand linked to reduced sectoral investment in infrastructure and housebuilding, the industry has to contend with progressive transformation from cement concrete to steel building structures. A study shows China is now using annually over 100m tonnes of the metal steel structures. That is a significant progress from around 50m tonnes some six to seven years ago. The trend of growing percentage of steel used in construction vis a vis cement will continue in China with advancement in technology. For instance, in developed economies, steel to cement consumption is significantly higher than either in China or India, often reaching 1.5 or even higher.

Even though plagued by falling demand and capacity use, China with cement production of close to 1.9bn tonnes had by far the largest share of the world 2024 output of around 4bn tonnes. India comes second with production of 450m tonnes in the global pegging order but trailing China by a big margin. After providing for production downslide in recent years, China is found responsible for close to 75% global growth in cement production since 1990 and as a natural corollary, the industry’s carbon footprint rose to government and also global concern.

Studies show China cement related emissions peaked in 2018 at 1.073bn tonnes of CO2 and these have remained high since. In a two-step move to curb emissions and make cement making progressively environmentally sustainable, Beijing has plans to cap the clinker capacity at 1.8bn tonnes by 2026. At the same time, the message has gone loud and clear to the industry to go on improving energy efficiency in operating clinker production lines, to quickly make at least 30% capacity operate at above the national energy efficiency benchmark level.

The industry also remains under pressure to use growing volumes of renewable energy and alternative fuels. Clinker use is also sought to be curbed by the industry using growing quantities of other cementitious materials like blast furnace slag and fly ash, thereby giving a boost to recycling. Like with steel and aluminium, China is allowing building of new clinker plants only as capacity replacement.

At the same time, in a cleansing up operation launched at the behest of government, the industry continues to disband energy inefficient and disturbingly polluting capacity. Cement has an 8% share of China’s total CO2 emissions. But under growing pressure from the government and environmentalists, Chinese cement makers are applying carbon capture technologies. The industry is credited with commissioning a very large-scale oxy-fuel combustion cement plant at Qingzhou in Shandong province. The largest of its kind in the world cement industry, the Qingzhou unit is capable of capturing 200,000 tonnes of CO2 a year. (IPA Service)