M&As in cement sector 'key' to boost industrial efficiency, green push

Updated: January 4, 2022 Source: China Daily
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China National Building Material Group. [Photo/CNBM website]

To have better access to capital, cut operating costs resulting from higher volume, increase market share of leading players and reduce outdated capacity, China has seen in recent years, and will continue to see in the years to come, more mergers and acquisitions and the establishment of large groups in the cement sector, industry experts said.

The comments were made after the listed arm of State-owned China National Building Material Group Co Ltd, namely Xinjiang Tianshan Cement Co Ltd, merged recently with four CNBM units and established a company, whose official name is yet to be disclosed. The listed company is now the largest globally in terms of business size in the cement sector.

The new company now wholly owns China United Cement Co and Sinoma Cement Co Ltd, a 99.93 percent share in South Cement Co Ltd and 95.72 percent of Southwest Cement Co Ltd.

The new cement company is valued at 120 billion yuan ($18.84 billion), with total employees surpassing 72,000. Its annual production capacities of clinker, commercial concrete and construction aggregate are expected to reach about 300 million metric tons, 400 million cubic meters, and 150 million tons, respectively, according to CNBM.

Owning 14 subsidiaries, the new cement company has a presence in over 20 provincial regions, CNBM said.

The move was aimed at avoiding horizontal competition within the group, optimizing construction material business layout, promoting high-quality development and increasing its global competitiveness, CNBM said.

China's cement industry has seen a growing number of M&As in recent years, as players seek to create large-scale groups to increase access to capital, cut operating costs resulting from higher volume, increase market share of leading players and reduce outdated capacity, said Lin Boqiang, head of the China Institute for Studies in Energy Policy at Xiamen University, Fujian province.

A report by Founder Securities said China's green commitment has a big influence on the supply-side structural reform of the cement sector. There are mainly two ways to reduce carbon emissions from the sector: One is to cut total production capacity and the other is to reduce carbon emissions per unit of existing production capacity.

"Under China's commitment to peak carbon emissions by 2030 and achieve carbon neutrality by 2060, encouraging M&As is especially meaningful for the green transformation of energy-intensive industries like cement, as it enables companies to be able to invest more to innovate technologies, which can make the industry more energy efficient," Lin said.

"China still has large demand for infrastructure construction, which is closely related with cement. As an energy-intensive industry, both challenges and opportunities lie in finding out how to shift to low-carbon development. Going forward, technology innovation to promote green and high-quality growth will become a key for a cement company to outperform peers," he added.

Data from the National Bureau of Statistics showed accumulative cement production volume of companies with a sales revenue of 20 million yuan or above in China reached 1.97 billion tons in the first 10 months of 2021, up 2.1 percent year-on-year.

Zhou Yuxian, chairman of CNBM, said the cement sector is among CNBM's most important and profitable business sectors. The merger is not only a business integration, but also a reform and innovation helping its cement business optimize and upgrade.

Zhou said the merger will create a synergistic effect, and the core competitive advantages of CNBM's cement business will be highlighted. The profitability, competitiveness and the ability to achieve sustainable development of CNBM's cement arms will be further strengthened.

The new company will ramp up efforts for top-class technologies and management, Zhou said.

"Going forward, CNBM will further upgrade its cement business and achieve high-end development, intelligent transformation, and have greener growth," Zhou said.

"To achieve the goal, CNBM will step up efforts in developing special cements (cements that serve special functions such as altering the setting or hardening levels of a concrete structure) for high-end development, promoting industrial digitalization for intelligent transformation and facilitating energy saving and emissions cutting to usher in green growth."

Zhou said CNBM will also work to improve operation and management levels, develop new businesses and expand market presence overseas.

Editor: Gao Jingyan