Mu Rong

The survival period for the present 600 million tons backward small vertical kiln production capacity in China is under counting down. Chinese National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technololgy (MIIT) have jointly ratified an industry directory proposal, deciding to phase out the 600 million tons of backward small vertical kiln capacity in three years from 2010 to 2012. The move will involve more than 3,000 domestic enterprises, and is also another large-scale outdated capacity elimination launched in the country after the announcement of the elimination plan in 2007.

According to the Summer Report on China Industrial Economic Operation in 2009 jointly published by MIIT and the Industrial Economy Research Institute of the China Academy of Social Sciences published in the end of August, China is in serious overcapacity. The overcapacity of cement production is estimated at about 300 million tons. Furthermore, the country has more than 200 cement production lines under construction, which will add new capacity of more than 200 million tons.

Currently, China has more than 3,000 small vertical kiln factories each with a capacity of about 100,000 tons. China’s investment in cement industry reached RMB88.0 billion in the first seven months of this year, a net increase of RMB35.0 billion over the same period of last year or up 66%. The figure is about the total of investment in the whole year of 2003. Experts forecast that China’s cement output will top 1.6 billion tons in 2009, exceeding the 1,000-kg per capita consumption of cement in many developed countries. The profit margin brought about by the low costs and low-level technology is the basic factor for backward capacity to persist. The fast expansion and outdated production capacity have led to the present serious overcapacity, and also made cement producers suffering. China’s cement price has gone downward in recent years. The present coal price is three times of that ten years ago. Usually, the price ratio between iron and steel and cement products stands at 3:1 internationally, but in contrast, the ratio in China is 15:1 and even tops 20:1 sometimes.

China will direct development of cement industry from three aspects. 1. To strictly control market access and strengthen cement project examination and approval; 2. To step up elimination of small vertical kilns to give market space for new dry process cement production in accordance with the “quantity elimination” principle; and 3. To limit new production capacity and realize aggregate control by adopting the methods of per capita output of cement production saturation and balance standards generally used in the world.

Previously, China planned to phase out 250 million tons of outdated capacity between 2006 and 2010. The NDRC divided the target by year to eliminate 50 million tons of outdated capacity each year in the 2007-2010 period. The present target of eliminating 600 million tons of small vertical cement kilns in three years has far exceeded the previous plan of NDRC.

Getting rid of the outdated production capacity is also a part of the process to speed up merger and acquisition and restructuring of enterprises. At present, the majority Chinese cement enterprises have gone through the restructuring and are non-governmental companies. The restructuring mainly focuses on non-governmental companies. The country plans to carry out merger and acquisition and restructuring of non-governmental companies, especially targeting at those with low concentration rate and outdated production capacity, through centrally administered state-owned enterprises and large local corporation in a bid to prevent disordered competition among companies and help enterprises operating in keeping with the state policy survive.

Recently, MIIT has issued the Access Requirements to Cement Industry (a copy for soliciting public opinions), which has set high threshold for cement industry. Various-level governments will be strict in control of launching new cement projects. Provinces with per capita cement clinker capacity exceeding 1,000 kg are banned from building new cement clinker production line, indicating that provinces such as Anhui and Zhejiang will have no chance to have new cement production projects launched.

Provinces with per capita cement clinker capacity less than 1,000 kg shall approve new dry process cement production lines according to the “quantities elimination” principle, and the production capacity shall be the same as the outdated capacity of small vertical kilns and wet process kilns. Provinces with the new dry process cement percentage exceeding 70% are required to control the yearly newly launched cement production capacity within 10% of the total cement output of the province in the previous year.