2015 Building Materials Industry Events: De-capacity

The keyword for the highest frequency of the building materials industry in 2015 is probably “decapacity”. China's building materials industry has been in excess of the status quo. Since the beginning of the “12th Five-Year Plan”, it has put forward demand for control of production capacity, and has also strictly controlled some key regions. The period of 2010-2011 is considered to be the recent boom period of the building materials industry. After that, with the introduction of strict real estate control policies. Demand for construction materials dropped sharply, coupled with the soft landing of the economic slowdown, and the transformation of the real estate-dependent economic structure led the building materials industry as a whole to enter a recession period. However, the capacity for expansion in the previous period has not been effectively resolved.

According to the data from the National Bureau of Statistics, since 2015, the growth rate of the building materials industry has dropped, the prices of main products have continued to decline, and the overall performance has been steady and downward, and the economic benefits have fallen sharply. The downward pressure on the industry continues to increase. Concomitantly, it is the recession in the real estate industry.

“The rapid growth of the past few years has led to the advance overdraft of building materials.” According to industry insiders, the rapid development of China's infrastructure and real estate industries has led to a leap forward in the building materials industry that provides important basic raw materials. However, as a result, demand has been overdrawn ahead of time, and the building materials industry is facing serious overcapacity.

The result of excess capacity is a sharp drop in profits, and even a large area loss. The above-mentioned sources said that taking cement as an example, a few years ago, when the steel industry suffered a total loss, the cement industry was also profitable. However, by 2015, the cement industry has begun to repeat the mistakes of the steel industry. Profits have fallen sharply, and even some regions have opened up a competition to “see who can afford it”.

Data show that in the first three quarters of 2015, nearly half of cement and flat glass companies suffered losses, cement loss-making enterprises suffered losses of up to RMB 17 billion, and flat glass-loss companies suffered losses of RMB 3 billion. What is more serious is that although half of the companies in the cement and flat glass industry currently maintain a meager profit, the actual situation is that many of them are in recessive losses.

Therefore, since the beginning of the year, the Ministry of Industry and Information Technology has repeatedly issued a document with strict wording, and it is forbidden to add excess building materials, such as glass, cement, and steel, to local production capacity. The “Improhibition” version was subsequently issued in various regions. With the implementation of the policy, strict enforcement of environmental standards has forced many companies to withdraw from the market.

In addition to the elimination of outdated production capacity and the strict prohibition of new production capacity and other prohibition policies, many new policies have been introduced at the national level to guide the development of the market. Under the new guidance of the “One Belt and One Road,” many glass companies have accelerated the pace of going abroad. Leading companies such as Fuyao and Qibin have taken the lead in setting up factories in foreign countries, adding rigorously, eliminating backwardness, upgrading industries, and going abroad. The surplus building materials industry such as cement and glass are under the guidance of the policy, and the surplus in 2015, especially in the second half of the year. With a greater degree of mitigation, taking glass as an example, the output for the full year has been declining for 10 consecutive months with a decline of 6%. In the transformation of the Beijing-Tianjin-Hebei-based building materials industry, Hebei alone has eliminated over 10,000 cement companies in the past two years.

The industry law of building materials presents a cycle of development—prosperity—excess—recession—development—prosperity. Accompanied by the rise and fall of the real estate industry, in terms of industry rules, the real estate industry is still not showing signs of recovery. It is expected that the key words of the cement, glass and other industries in 2016 will still be concentrated on "resolving excess capacity". The industry's capacity elimination process is still far from over.