Interview with CUCC Chairman Cui Xingtai: the Chinese Cement Industry in 2020 and CUCC’s COVID-19 Response

In this interview with China Cement Net, CUCC Chairman, Mr Cui Xingtai discusses how the cement industry can contribute to China's economic recovery, how CUCC is working to combat the epidemic and the company's plans for future development as well as those of the wider cement industry.

Original Text by Zhou Cheng, China Cement Net

I. Covid-19 Has Brought Opportunities but also Incurred Risks

2020 marks the end of the 13th Five-Year Plan, however, the sudden outbreak of the coronavirus has greatly impacted China's economy, society and people’s lives. Difficulties and challenges thus have arisen, which have hampered the realisation of economic and social development targets.

To cushion the blow, central and local governments have made efforts to implement various policies and measures to stabilise investment. The National Development and Reform Commission pointed out that it will accelerate the construction of major projects and infrastructure that have been confirmed in the national plan, expand the scale of special bonds issued by local governments, and support the construction of infrastructure and public service projects that are to generate profits. According to China Cement Net, 25 provinces and cities by 10th March had announced their future investment plans, with a total investment of RMB 49.6 trillion for 22,000 projects. Among these, investment of RMB 7.6 trillion is planned for 2020.

CUCC chairman, Cui Xingtai said that a series of infrastructure investment policies to stabilise growth and safeguard the well-being of people introduced by the central and local governments will bring new development opportunities to the cement industry. On the one hand, new infrastructure investment will generate new cement demand. More importantly the next few years will still see larger positive influence since this may extend the cement demand plateau by 3-5 years. Furthermore, the industry boom and the extension of the cement plateau period provide a good economic foundation and relatively sufficient time for supply-side structural reform, transformation and upgrade of the industry.

On the other hand, we also see that behind the opportunities, the cement industry also faces multiple risks. First, the short-term prosperity of the industry masks the fact that the task of transformation and upgrade is arduous, and blind optimism may delay the work of supply-side structural reform. Moreover, some investors will take advantage of policy loopholes to add new capacity and thus add new surplus.

Second, high profitability will tempt more and more enterprise to prioritise immediate interests and to circumvent off-peak production by various means. What is at stake is the industry’s self-discipline. Furthermore, due to the need for growth and less efforts to limit production for the sake of environmental protection, the cement capacity may be released to a large extent. As a result, the balance between supply and demand in recent years is to be broken, and a new round of vicious competition may be sparked.


II. The Overall Cement Industry Will Be in Good Shape, but Uncertainties Will Increase

Pertaining to the situation of the industry amidst the spread of coronavirus in 2020, Cui Xingtai said, “the outbreak has heavily impacted on the economy as a whole and repercussions of this will affect the cement industry. Due to the pandemic, cement sales in the first quarter fell by 20% - 25%. But the whole year demand will not change much since the demand for cement is rigid. The loss during the lockdown time will be recovered in later during in the year.”

In addition, it takes a certain period of time to implement projects after their approval. The investment in infrastructure by the state and local governments has a limited immediate effect on cement demand: the larger impacts will be seen over the next 3-5 years. Based on this, Cui Xingtai forecasted that the demand in 2020 will remain relatively stable, with the annual clinker output remaining at 1.5 billion tons. In the wake of changes to standards for cement grade structures in China, cement output which will reach up to 2.3 billion tons in 2020.

Asked about cement prices, Cui Xingtai revealed that in recent years the price of cement in China has been increasing: by the end of 2019, prices reached a historical high. Nevertheless, due to the uncertainties of 2020, cement prices are likely to go down.

Firstly, due to issues of severe overcapacity in the industry, cement prices in recent years have remained stable thanks to the combination of policies and factors such as off-peak production, limiting production in an effort to protect the environment, self-discipline of cement producers, etc. However, the outbreak of Covid-19 has put great pressure on the economy, and hence stabilising growth will be the top priority in 2020. As a result, it is uncertain whether the afore-mentioned policies of off-peak production and limiting production in an effort to protect the environment will be still pushed as hard as before. This to a certain degree affects the cement price.

Secondly, good income and profits have inspired some cement producers to investment in new capacity. Some will resort to capacity replacement to increase capacity in a blind way, others may circumvent off-peak production by utilising co-processing facilities and other methods. All these will worsen the gap between supply and demand in some regions.

The third uncertainty comes from the impact brought by increasing regional imbalances. For example, the clinker from low-price areas such as Northeast China, Guizhou, Yunnan and Guangxi will impose impacts on the coastal and surrounding areas. Resultantly, the balance and self-discipline of other regions will be affected. The reduction of highway tolls due to Covid-19 outbreak further expands the impact sphere and degree of imbalance.

For the above reasons, Cui Xingtai predicted that the average price of cement in China will decrease by 5% in 2020 YoY, and the annual profit of the industry will be around 150 billion yuan. He said, “Although the cement industry in 2020 will continue to be in the same situation as in 2019, there are more uncertainties.”


III. CUCC: Maintaining Development While Containing Coronavirus

After the outbreak, CUCC has thoroughly studied and implemented President Xi Jinping’s instructions on the epidemic prevention and control. Following government stipulations and its parent company’s requirements, CUCC takes proactive efforts to prevent and control the coronavirus and plan for work resumption.

During the Spring Festival, 8 clinker production lines and 2 ready-mix concrete plants of CUCC operated normally, and 2700 employees attended work as usual. CUCC Nanjing Concrete Company supplied Nanjing Public Health and Medical Center more than 10,000m2 concrete for its emergency response projects. The project covers 288 emergency units for patients and 32 emergency units for doctors and other medical staff. Qufu Cement Company of CUCC supplied Ji’ning Xiaotangshan Hospital Project with more than 1,000 tons of cement. It has mobilised all of its resources to meet cement needs for Covid-19 prevention and control projects. In addition, Qufu Cement Company and its affiliated enterprises donated more than 9 million yuan in money for the epidemic prevention and control.

“In the face of Covid-19, employees' health and safety are the top priority of CUCC in spite of the need to resume work,” emphasised Cui Xingtai. To date, CUCC and its affiliated companies have not found any suspected or confirmed cases. 100% of staff have resumed their usual work while production rate is about 75%.

In recent years, CUCC, following the supply-side structure reform requirement and the strategic deployment of CNBM, has been pushing business structure adjustment, transformation and upgrade. Adhering to the development philosophy of “strengthening cement business, optimizing the ready-mix concrete business, enlarging the aggregates business and doing well in a comprehensive way,” CUCC has made efforts to extend the industry chain, promote AI and smart production and green manufacturing so as to boost high-quality development. In terms of extending the industry chain, CUCC has developed its aggregate business upward and ready-mix concrete and cement products downward, and seeks new profit growth. In terms of production, CUCC transforms from resource and energy consumption to green and environmental protection, and makes full use of the unique advantages of the cement industry to treat industrial solid wastes, and co-process toxic and hazardous wastes, municipal solid waste and sludge.

In an effort to reduce particulates, NOx, SOx, and SO2 emissions, CUCC works hard to build green quarries and eco-friendly plants, improve environmental quality, and protect employees’ and neighbouring residents' health.


IV. Looking to the Future: Contributing to High-Quality Economic Development

In Cui Xingtai’s view, the cement industry should play the following four roles in China’s economic development moving forwards:

First, to provide quality products - as one of the fundamental building materials, cement plays an irreplaceable role in economic and social development. Cement enterprises should strictly control the quality of cement so as to provide high-quality, diversified products and services for downstream businesses and to meet the needs of construction.

Second, to maintain market stability - the health and stability of the cement industry is related to the sustainable development of the industry and the sound operation of the national economy. Therefore, industry players should take a long-term view when making investment and business decisions, strengthen self-discipline, and avoid opportunism, monopoly and vicious competition.

Third, to promote structural transformation - supply-side structural reform is key to the sustainable and healthy development of the cement industry. Industry insiders should be aware that in the case of serious overcapacity, the industry must reach a consensus as soon as possible, take effective measures to reduce overcapacity, and promote industrial restructuring, transformation and upgrade through technological progress, environmental protection upgrades, joint restructuring, and industry chain extension.

Fourth, to take social responsibility- after the outbreak of Covid-19, the major cement enterprises not only actively donate money and materials, but also co-process medical wastes in their cement kilns. In the future, the cement industry should further strengthen efforts to save resources, reduce emissions, co-process wastes, improve the environment, support public welfare, and make a greater contribution to the sustainable development of society.

The year 2020 is destined to be an extraordinary one. All walks of life are undergoing profound changes due to the outbreak of the pandemic. Standing at the new beginning of history and in the face of steady economic growth, the cement industry should be more forward-looking, appreciate the bigger picture, and push for high-quality development.