SOURCE: Freedonia Group, Inc.

October 12, 2006 10:45 ET

Demand for Cement in China to Reach 1.3 Billion Metric Tons in 2010

CLEVELAND, OH -- (MARKET WIRE) -- October 12, 2006 -- Demand for cement in China will rise 5.1 percent annually to 1.3 billion metric tons in 2010, driven by moderating yet still healthy growth in construction expenditures. China is the largest national consumer of cement in the world, accounting for close to half of global cement consumption. Portland cement will continue to dominate, although significantly faster gains will be registered in blended and specialty cements. These and other trends are presented in "Cement in China," a new study from The Freedonia Group, Inc., a Cleveland-based industry market research firm.

The Chinese cement industry went through a volatile period between 1995 and 2005. Demand for cement recorded double digit growth in the early twenty first century as large, cement-intensive construction projects -- such as the Three Gorges Dam, the West-East gas pipeline and the national highway system -- were in full progress. In addition, cement producers benefitted from the government's ban on the use of clay brick in building construction. High demand spurred capital investment and the industry was quickly faced with severe overcapacity, which caused prices to fall to very low levels. At the same time, production costs rose, causing many companies to become unprofitable. This prompted the Chinese government to institute policies aimed at reducing industry fragmentation and slowing capacity expansion. Looking forward, demand will moderate somewhat as several of the aforementioned projects have essentially been completed.

Growth will be driven by healthy construction activity and the use of cement in large projects such as the South-North Water Diversion, the national highway system and regional development efforts like the "Go West" and "Northeast Revival" programs, which will spur infrastructure construction. Average prices are expected to recover as the overcapacity situation moderates and the product mix shifts to include greater amounts of higher quality (and higher priced) portland, specialty and blended cements.

Construction contractors and concrete product producers will continue to be the largest markets for cement in China, each with just under one-third of the market total. However, demand from construction contractors will decelerate sharply due to government bans on the mixing of concrete on job sites. This will spur strong growth in the ready-mix concrete sector, which will become the second largest market for cement in China by 2015.

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