Since the beginning of this year, Chinese aggregates market seems to have continued the previous decline and fell into a downturn. Why does this happen? Does this mean that the aggregates market is hard to come by? What is the future trend of the aggregates market?
1. The continuous drop of aggregates prices
“Now, the aggregates price is only a little more than 30 yuan / ton, and there is no profit at all, and the quarry is basically in a state of shutdown.” The aggregates market in Yuzhou City, the building materials production base, has not improved, but has plunged into a recession in the past four years, and the aggregates price has dropped by 2/3 compared with the peak. During the interview by China Mining News, the owner of a building materials mine said with anxiety.
In fact, several other large-scale quarries in Yuzhou City are also facing such a dilemma and are almost in a state of semi-shutdown. It is understood that although the average price of aggregates in Yuzhou has been on a downward trend in the past four years, industry insiders are still optimistic and generally believe that the minimum average price will not be lower than 50 yuan/ton. However, since the Year of 2022, although quarries producers in Yuzhou City are full of confidence, the market remains weak, and the average price of aggregates has fallen to the lowest level in recent years. Yan Yajun, chairman of Yuzhou Yixin Building Materials, said to the reporter: “In 2019, the average price of aggregates in Yuzhou was 95 yuan/ton; in 2020, the average price dropped to 75 yuan/ton; in 2021, the average price fell to 55 yuan/ton. In March 2022, it fell to 35 yuan/ton.”
You may know by a handful the whole sack. As a typical representative of the Central China, the aggregates market in Yuzhou is not optimistic, and other areas are not much better. It is understood that although Lanzhou in the northwest region is the provincial capital, the price of aggregates is also low. The price of aggregates in Hubei province also declined. According to relevant monitoring data, the overall price of aggregates in Hubei Province decreased slightly in February. After entering March, there is still no sign of improvement. The price of aggregates at Minben Mining in Hubei Province has dropped by more than 10 yuan per ton.
In Jiangsu and Zhejiang regions, which are economically developed regions, the price of aggregates has also begun to show a downward trend since the fourth quarter of last year. “Since November last year, the price of aggregates has been rising for a short period of time due to measures implemented to control both total energy consumption and energy intensity. It is the first time I have encountered this situation since I have been in the industry for more than 20 years. Even when the price of aggregates across China skyrocketed, aggregates price in Huzhou city maintained stable, but since the fourth quarter of last year, the price per ton of aggregates in Huzhou has dropped by 10 to 15 yuan year-on-year.” Said Yao Shaowu, the general manager of Huzhou Xinkaiyuan Crushed Stone Co., Ltd. Yao has been working in aggregates industry for many years and he was perplexed by the situation in the aggregates market.
2. Demand is difficult to rise due to various reasons
First, after the Spring Festival in 2022, due to the impact of the Covid-19, the construction of different parts of China had not reopened, and the overdue payment is serious. The real estate industry, as the largest demander of aggregates, remains weak in recent years and its impact on aggregates market begins to appear. Due to the Covid-19 prevention and control measures and the city closure during the Spring Festival, local real estate in Yuzhou City has been “damaged”, and few business was reopened since March. The situation in Zhengzhou, main sales market of Yuzhou, is not optimistic either. According to industry insiders, although it has entered March, Zhengzhou’s real estate industry is still cold.
Under the influence of the national policy of “houses are for living in, not for speculation," the property of real estate has changed significantly, from an investment product on the balance sheet of ordinary people to a consumer product. Moreover, from the perspective of the real estate cycle, the last round of real estate upswing took a long time, and this downturn is unlikely to end soon, and the large head real estate groups that have been hit hard have suffered heavy losses and will take time to recover. It is expected that in the next three to four years, the aggregate market will be affected”, Yao Shaowu said.
"Affected by the dual effects of real estate regulation and financial deleveraging, the number of real estate starts declined seriously in 2021, coupled with the combined effect of several major factors such as the decline in domestic infrastructure investment after reaching its peak, government investment funds, power curtailment policies, and environmental protection inspections. These factors had a direct impact on aggregates market, and aggregate prices are facing downward pressure." An industry insider in Hubei Province also holds the same view.
Second, the aggregates mining rights continued to be released, and the production capacity increased significantly. The price of aggregates depends on the market trend. In recent years, with the centralized release of a batch of mining rights, the production capacity of aggregates has increased rapidly, which has largely inhibited the high operation of aggregates prices. According to “China Aggregates Industry Operation Report 2021” released by the China Aggregates Association, in 2021, judging from the new major aggregate production lines in various provinces, there are more than 10 new aggregate production lines in Fujian and Shanxi; Henan has 6 new aggregate production lines, Guangxi has 5, Liaoning 4, Guizhou 3, Anhui 2, and Hunan 1; and 1 in Sichuan, Chongqing, Hubei, Shaanxi, and Shandong. In 2021, the number of newly established aggregates mining rights nationwide is 805, of which Yunnan and Xinjiang rank the top two in China, with 166 and 156 respectively; Heilongjiang and Guizhou provinces have aggregates mining rights between 50 and 100; newly established aggregates mining rights in Jilin, Guangxi, Gansu, Hubei, Sichuan, Chongqing, Guangdong, Zhejiang, Shaanxi, Anhui and Shandong is less than 10. By the end of 2021, there are about 15,000 aggregates mines.
"In the past two years, many large mines have been sold in Hubei, Jiangxi, Anhui and other places. On the one hand, the aggregates industry is required to develop in large scale, on the other hand, the development of mineral resources (especially sand and gravel mineral resources) is an important part of the fiscal revenue of some local governments besides land sale. Capital focuses on the aggregates industry, not only because the current economic situation is facing triple pressure (shrinking demand, supply shock, weakening expectations), but also because there are no other good investment, and the aggregates industry still has certain development space, although many investors have realized the danger of overcapacity in aggregates, they still want to have a try in the aggregates industry" Mei Xiangfu, president of Hubei Aggregates Association, said frankly.
Lai Zhiguang, president of the Guangdong Sand and Stone Association, holds the same view. He believes that in recent years, in Guangdong, whether in the Xijiang River Basin, or in Zhaoqing, Yunfu and other places, many large-scale aggregates mining rights have been approved. The increment of these projects reflects the strong market demand, but with the gradual release of mining rights, the market will return to rationality.
In recent years, the release of sand, stone and gravel mining rights in Jiangsu and Zhejiang regions has also increased, which has caused the downturn of the aggregates market to a certain extent. It is understood that due to the convenience of shipping in Jiangsu and Zhejiang, the local market is not only supplied by local mining companies, but also supplied by Hubei, Jiangxi, Anhui, Shandong and Fujian along the Yangtze River. The market competition is fierce.
3. The future of the Chinese aggregates market is promising
Although in the first half of this year, the decline of China's aggregates market is almost a foregone conclusion, but some industry insiders are still full of hope for the future trend of the industry.
"Multiple reasons lead to the narrowed supply of aggregates in 2022, such as measures taken to achieve carbon peak, double control of energy consumption, continuous increase in environmental protection and energy efficiency, Covid-19 prevention and control, and the development trend of large-scale and green development of the aggregates industry. It is estimated that the annual supply of aggregates for construction is about 19.5 billion tons in 2022." Said Hu Youyi, president of the China Aggregates Association. Hu judged that the demand for aggregates will be generally stable in 2022, with a steady decline. Infrastructure and real estate construction are the two major demand sides of the industry, and the overall demand for aggregates may continue to shrink. However, the infrastructure investment plan in 2022 is expected to be deployed ahead of schedule, and the issuance of special bonds will lead to an active infrastructure market and stimulate the demand for aggregates. Real estate investment is expected to develop in a steady and healthy way. However, under the industrial background that the supply and demand of aggregates may shrink slightly in 2022, the transportation factors that have a great impact on the price fluctuation of aggregates will be improved to a certain extent, alleviate the supply tension in some areas, and basically achieve the balance of supply and demand. In 2022, the supply and demand of aggregates for construction will still show a trend of decline. Combined with industry data, the annual average price may increase by 1%-2% as a whole compared with 2021.
There are many people in the industry who hold this optimistic attitude. Lai Zhiguang believes that the policies proposed by the National People’s Congress in 2022 to increase the transfer payments from the central government to local governments, policies of tax reduction and fee reduction for the manufacturing industry and small and micro enterprises, and the appropriate advance investment in infrastructure construction will be beneficial to the aggregates industry and even the building materials industry. In 2021, there are not many new mines in the Greater Bay Area, mainly in Huizhou. It is expected that 3-4 new projects in Huizhou will be put into operation one after another. However, due to objective factors, the launch cycle will be slightly longer than expected. After the new mines in Huizhou are put into operation, the local price will be fine-tuned to a certain extent, but the overall demand for aggregates in the Greater Bay Area is still relatively strong. Taking the Greater Bay Area as an example, in 2022, it is estimated that 16 subway lines with a total of 226 kilometers in Shenzhen, 11 subway lines in Guangzhou, the South Ring, East Ring and West Ring of Guangfo Ring Line, and the third phase of Dongguan Urban Rail Transit Line 2 have been written into this year’s construction plan, which will effectively drive the steady development of the entire aggregates industry in Guangdong Province.
There are also many people who are cautious about aggregates market in the future. Yao Shaowu believes that the influence of regulation of fluctuations in the law of value cannot be ignored. Since 2010, thanks to the policy dividend, aggregates in many places has been in short supply, and the growth trend of aggregates in most parts of China remains great. At present, the aggregates is still in the seller's market, and the payment for goods is also settled in cash, which will eventually change to the buyer's market, and the industry will face the problem of accounts receivable. Therefore, aggregate price needs to remain at a reasonable range. Compared with the long-term stability of aggregates prices in developed countries, the aggregates price in some parts of China currently is at a high level. Aggregates from other low-cost areas will soon fill the local market through various channels, and will eventually return to a reasonable value range.
"Chinese economy is facing the triple pressure of demand contraction, supply shock, and weakening expectations. The 2021 Central Work Conference put forward the guiding ideology of maintaining stability and seeking progress in a timely manner, and will moderately advance some major projects, which is beneficial to the development of our industry. Overall, it is estimated that due to the combined effects of the downturn in the real estate industry and the repeated epidemics, the price of aggregates in the Hangjiahu area will fluctuate moderately this year, with stable and moderate declines.” Yao Shaowu analyzed.
Mei Xiangfu also said that the market trend this year is highly uncertain, as everyone is waiting for the project to start progressing. It remains to be seen whether the demand can return to a normal level. At the same time, the Covid-19 has also significantly inhibited the project construction. The international situation is also not optimistic. After the price of coal, oil and other energy resources increase sharply, the cost of enterprises will be greatly increased, and the predetermined track may even be changed.