Following the July 3rd, the state-owned enterprise-Zhuhai Aggregates Company won a 2.86 billion yuan bid for the mining right of the Zhuzhailing construction granite mine in Doumen Town, Doumen District, Zhuhai City, which triggered an turmoil in the aggregates industry in Guangdong Province, July 15 , Zhuhai’s online bidding activities for the use rights and mining rights of the Lingding East Sea outside the Zhujiang Estuary, Guangdong Guangye Environmental Construction Group Co., Ltd. finally dropped a blockbuster on the aggregates industry in Guangdong Province with a transaction price of 6.248 billion yuan. It broke the record in Guangdong Province, which caused huge waves in the entire aggregate industry. These two incidents are also called "sky-priced mineral rights" in the industry.

So, what caused the emergence of "sky-priced mineral rights"? What kind of impact will the emergence of "sky-priced mineral rights" have on the local aggregates market order and industrial layout, and will it affect the future trend of the national aggregate industry? The reporter recently interviewed Hu Youyi, President of the China Aggregates Association, on the above issues, and asked him to deeply analyze the hidden worries behind the "sky-priced mineral rights", so that the industry and outsiders can get a more authoritative and comprehensive understanding from it.

"Aggregates are the most basic and indispensable building materials in engineering construction. Like cement, it is the largest amount of raw material of concrete, and the amount is 6 times that of cement. Therefore, the market is huge. In recent years, the country has implemented ecological civilization Construction, environmental protection policies have become more and more stringent, and environmental protection measures have been gradually strengthened in various places. A large number of traditional aggregates enterprises with outdated technology and small scale have been eliminated. However, the construction period of quarries is long. As new quarry production capacity cannot be released immediately and lots of old quarries has been shut down, the supply of aggregates on the market has been significantly reduced. Besides, the infrastructure construction in various places is still continuing. In addition, the key construction projects proposed by the state, including the “two new and one heavy” construction proposed by the two sessions this year, the market demand for aggregates continues to be strong, and prices have naturally risen." Hu Youyi briefly analyzed the current overall environment of the national aggregate market.

According to Hu Youyi, in recent years, the shortage of aggregates and the price increases have aroused great concern from the center and local governments. In November, 2019, 10 departments including the Ministry of Industry and Information Technology jointly issued "Several Opinions on Promoting the High-quality Development of the Manufactured Aggregates Industry". In March this year, during the epidemic, 15 departments including the National Development and Reform Commission jointly issued the "Guiding Opinions on Promoting the Healthy and Orderly Development of the Aggregates Industry" (hereinafter referred to as the "Guiding Opinions"). In order to better implement the spirit of the document, in accordance with the requirements of the National Development and Reform Commission and the Ministry of Industry and Information Technology, China Aggregates Association organized experts to compile the interpretation of the "Guiding Opinions" and release them simultaneously with the "Guiding Opinions". At the same time, since April, China Aggregates Association has been cooperating with the State Administration of Market Supervision and Administration, the Development Research Center of the State Council and other departments to make multiple notifications and plans, aiming to do a good job in market monitoring and coordination, stabilize market supply, and promote High-quality and healthy development of the aggregates industry.

Regarding the two "expensive mineral rights" incidents that occurred this month, Hu Youyi believes that the emergence of "expensive mineral rights" is inevitable for the current aggregate market. He analyzed that since the founding of New China, most industries have matured and there is not much room for capital operation. Aggregates are a large asset and resource-heavy industry that has grown up in the past 40 to 50 years. With the implementation of urbanization and the implementation of various environmental protection measures, the aggregates industry has undergone massive changes in recent years, from the original natural collection to an emerging material manufacturing industry. The characteristics of state support, market shortage, and high prices are bound to attract some large capital and large groups to enter, and the continuous increase in the price of mineral rights is inevitable.

Regarding the impact of “sky-priced mineral rights” on the local aggregates market and the future development of the national aggregate industry, Hu Youyi believes that the emergence of “sky-priced mineral rights” has the greatest impact on the local aggregates market and related enterprises, but has less impact on areas outside its sales radius, and will not have too much impact on the national aggregate market.

He specifically analyzed that the market has its own laws to follow, and the aggregates industry also has its own development laws. When making judgments, neither the laws of the market nor the laws of industrial development should be violated. Aggregates have a strong dependence on the sales radius, and the construction period of the quarry is long. Even the insiders need at least two years to release the quarry capacity, and the construction of environmentally friendly and high-quality aggregates production line and the technological process are extremely delicate. As an industry insider who is well versed in the operation rules of aggregates, he would not venture to obtain such “expensive mineral rights” unless the aggregates are extremely scarce in the local market and price is extremely high with huge profits to get.

"If the winners of these high-priced mineral rights are not familiar with the aggregates industry, they have not done a market feasibility study report, or the feasibility study report is not completely true, and it will be much likely to lose money. At that time, they may give up. In the past two years, regarding the high price of the mining rights, after careful calculation, it was found the investment was not profitable, and the news that they had to give up the deposit and ended in abandonment of the mine was common. For the bidding unit, although the loss is only a small deposit, it will cause irreparable losses to major national projects, local aggregates layout and industrial development, and even affect the bidding, auction and listing of other mining rights. For other bidders, the loss is even more immeasurable."

Hu Youyi said that even if the winning bidder obtains aggregates mining rights and sincerely develops and constructs aggregates mines, because the premium of aggregates mining rights is too high, the overall cost of aggregates companies will inevitably increase, and the higher costs will naturally be passed on to users. This not only runs counter to the country’s policy of ensuring supply and price stabilization, but also seriously disrupts the local aggregate market order, adding more risks to the future development of the local aggregates industry. Especially in some coastal areas, the high price of aggregates may further induce and aggravate the phenomenon of illegal mining and abuse of sea sand, which will affect the quality of the project and make the key projects and popular projects of the “hundred-year plan” become a “hundred-year taboo” project, sad project. For this reason, Hu Youyi reminded that before obtaining high-priced mineral rights, companies must make a solid market feasibility study report to avoid the above-mentioned results.

Regarding the 6.248 billion yuan of use rights and mining rights of Lingdingyang sea area on July 15, Hu Youyi also gave a detailed analysis and introduction. He said that the mining and use of sea sand cannot be separated from the desalination treatment of sea sand, and the cost of sea sand desalination is closely related to the desalination process. The market sales price of desalinated sea sand fluctuates greatly with market demand. The price of sea sand in various places is affected by the cost of desalination and different transportation costs. The mining cost of sea sand in the mining rights on July 15 was close to 200 yuan/cubic meter, which was close to the current prices of natural river sand and sea sand in Guangdong. Coupled with the desalination cost, the transaction price was obvious higher than the current price.

Hu Youyi analyzed more comprehensively from another perspective. Since the sea sand mining right is a market-oriented behavior, it is necessary to make analysis from the perspective of market economy.

First of all, the resource cost of sea sands in the Lingding East Sea area outside the Pearl River Estuary is nearly 200 yuan/cubic meter, but in July 2019, the three sea sand mining rights in Guangdong Province were auctioned and sold, of which the final price of the Huangmao sea area exceeded 2.5 billion yuan, and the resource cost was as high as about 490 yuan/cubic meter. There are similarities between the two, which must not be viewed solely from the perspective of the aggregates price market.

Secondly, it is worth noting that not only the sea sand mining rights but also the sea area use rights are being sold this time. In 2007, China's "Property Law" confirmed the right to use sea areas and clarified its usufructuary status. On December 17, 2019, the Ministry of Natural Resources issued the "Notice of the Ministry of Natural Resources on the Implementation of the Two Rights in One Tender, Auction and Sale of Sea Sand Mining Rights and Sea Area Use Rights" to streamline and optimize sea sand mining rights and sea area use rights. This notice will be implemented from the date of promulgation, and will be valid for 3 years. The sale of sea sand is completely within the validity period of the document.

Third, with the opening of a new round of infrastructure boom across China, the volatility of future demand for aggregates and the uncertainty of price trends have increased significantly. In particular, Guangdong Province recently sold a large amount of sea sand mining, the advantages of natural sand and gravel in Southeast Asian countries have decreased, and the price fluctuations of natural sand and gravel in some areas are more unpredictable. However, due to the second development of large-scale infrastructure construction, the price increase of basic materials such as sand and gravel is an inevitable trend.

"From the above 3 points, it can be seen that the sky-priced project seems to be an 'irrational' behavior, which exceeds the traditional price and traditional view of the aggregates industry on the bidding and auction of aggregates resources in the past, but whether there is any capital operation behind the mining rights are currently unknown, so the analysis from the perspective of high-priced mining rights alone is incomplete, but the impact of the project on the local sand and gravel industry is obvious.” Hu Youyi concluded that with the expansion of openness of China’s financial sector, it is an inevitable trend for big capital to enter the aggregate industry. At the same time, if the aggregate industry wants to empower the industry, they must learn, master and actively use financial knowledge, means and capital operations to improve corporate competitiveness.