As Chinese state is loosening the restriction on property market and proposed “moderately advanced” infrastructure plans, the building material market is looking forward to 2022. In the opinion of the China Aggregates Association and China Cement Association, compared with real estate, moderately advanced infrastructure may bring major imagination to 2022.

The frustrating coronavirus surge has made the cement market confusing in March, which supposed to show some positive signs. The news of price increases of cement from the end of the sale came one after another, but the feedback and sales data from the downstream showed weak demand.

From January to February 2022, the national cumulative cement output was 199 million tons, a year-on-year decrease of 17.8%, and an increase of 61.1% in the same period last year. The absolute value of the output was lower than the 41.96 million tons in the same period last year. It hit the second-lowest level in the same period since 2011, falling below 200 million tons again, only higher than the value in the same period in 2020, which was severely affected by the Covid-19 pandemic.

The performance of the aggregates market, which is also an important building material like cement, is relatively weak. Hu Youyi, president of the China Aggregates Association, speaking to the Economic Observer, said that the overall decline in aggregates production is related to the stagnation of production caused by the coronavirus surge and weak demand of downstream enterprises. The coronavirus restriction has caused quarries in some areas to be unable to produce normally, resulting in a reduction in output. The lack of construction of downstream infrastructure projects has also reduced demand.

But the real peak season doesn’t seem to have started until April. With the property market showing signs of loosening and “moderately advanced” infrastructure plans, the market is looking forward to 2022. In the opinion of China Aggregates Association and China Cement Association, compared with real estate, moderately advanced infrastructure may bring major imagination to 2022.

01. Coronavirus and price hikes

"If the goods haven't arrived, please understand each other, and I have tried my best." At around 10 pm on March 19, a Tianjin agent of a large cement company in Hebei sent a message in the Wechat moment, a popular Chinese social platform.

That night, roads in Tangshan City were closed. The truck going to the Tangshan Cement Plant to pick up the goods was stopped at the junction of Tangshan and Tianjin, which was not far from the cement plant in front. Roadblocks are set up on the road, and some vehicles of epidemic prevention personnel are on duty here.

"Almost all cement plants in Tangshan are closed," the agent said. On the evening of March 22, Tangshan City issued the "Announcement on the Strict Implementation of Temporary lockdown and Controlling Management", requiring Tangshan City to shut down the entire region, “The controlled management adheres to the principle of not entering inside, not entering outside, and not moving inside. There is only one entrance and exit for each village and community, and special personnel are arranged to be on duty 24 hours a day, and there are no less than 2 personnel on duty.”

A local person from Tangshan City told the Economic Observer that the local control was very strict, and private cars were not allowed driving on the road. On the afternoon of March 24, the above-mentioned cement agent said that there was still no cement in stock. The production of large local enterprises is still continuing, but it is difficult to transport the cement due to the obstruction of vehicle traffic.

On the evening of March 24, the aforementioned cement agent said that it was not clear when the supply would return to normal. The person reminded customers that it is best to stock up in advance. First, the supply is unstable, and second, cement prices have been rising recently. Not only the cement plant, but also the steel enterprises in Tangshan, the largest steel market in China, were quickly affected. The aforementioned person in Tangshan said that due to insufficient reserves of iron powder raw materials, some blast furnaces have begun to suffocate.

At the beginning of March this year, some mainstream cement enterprises raised the cement price one after another, and the whole industry followed up. In Tangshan, Jidong Cement and other enterprises successively issued price adjustment notification letters to customers. Outside the north, the cement market in the Yangtze River Delta and the Pearl River Delta has also generally risen, and cement has ushered in a significant wave of price rise.

02. The market turned cold again after signs of recovering

The Tangshan cement market is like a miniature under the coronavirus epidemic.

Strangely, the output data just released does not seem to reflect the heat of the market. Statistics show that from January to February 2022, China’s cumulative cement output was 199 million tons, a year-on-year decrease of 17.8%, an increase of 61.1% in the same period last year, and the absolute value of output was lower than 41.96 million tons in the same period last year. It hit the second low level in the same period since 2011, falling below 200 million tons again, only higher than the same period in 2020 seriously affected by the epidemic.

Jidong Cement mentioned the reasons for price adjustment in the price increase notice: the cost of cement has been increasing due to three factors, first, environmental protection investment increase, second, power restriction, third, the increasing cost of raw materials such as coal.

When talking about the increase in cement prices, local cement industry practitioners mentioned the reason for “rising coal prices”. Data show that coal prices have risen by more than 30% since December last year. According to local industry sources, cement companies were mostly in staggered production shutdowns in the first quarter.

On March 24, the Economic Observer learned from the China Aggregates Association that, as an important raw material for concrete as well as cement, the production and sales of aggregates have also declined. Full load has not reached, but the production drop of aggregates is smaller than that of cement.

Hu Youyi, introduced that the situation of production and sales of aggregates are basically the same as those of the cement market. However, in addition to being used in construction, aggregates are also used in road asphalt concrete, railway ballast and other fields.

Hu Youyi pointed out that it should be noted that the output and sales figures are not exactly the same, and the overall situation in the country and the situation in some regions are not exactly the same. For example, cement consumption in Shanghai increased by 21% year-on-year in January-February amid a sharp decline in national cement production. It is the same with aggregates, since aggregates are localized products, they have a strong regionality, and the situation varies from place to place.

Regarding the overall decline in the production of aggregates and cement, Hu Youyi believes that it is related to the production stagnation caused by coronavirus prevention and control measures and the weak downstream demand. The epidemic has caused quarries in some areas to be unable to produce normally, resulting in a reduction in output. The lack of construction of downstream infrastructure construction projects has also reduced the demand for materials such as aggregates.

From January to February 2022, the national fixed asset investment (excluding farmers) was 5.08 trillion yuan, a year-on-year increase of 12.2%. The growth rate was 22.8 percentage points lower than the same period last year, and 7.3 percentage points higher than that in 2021. The national infrastructure investment (excluding electricity) increased by 8.1% year-on-year, but decreased by 30.3% year-on-year. Among them, the investment in the water conservancy management industry increased by 22.5% year-on-year, the investment in the road transportation industry increased by 8.2% year-on-year, and the investment in the railway transportation industry decreased by 8.0% year-on-year. 

From January to February 2022, the national real estate development investment was 1.45 trillion yuan, a year-on-year increase of 3.7%, and the growth rate decreased by 34.6 percentage points compared with the same period last year. The housing construction area of real estate development enterprises was 7.845 billion square meters, a year-on-year increase of 1.8%; the newly started housing area was 150 million square meters, a year-on-year decrease of 12.2%. Among them, the newly started residential area fell by 14.9%.

03.“Moderately advanced” infrastructure investment

According to previous years situation, with the advent of the construction season in the north at the end of March, the demand for building materials is about to start the peak season. What is the biggest driver of building material market demand in 2022? Is it from real estate or infrastructure, or something else?

Speaking to the Economic Observer, Hu Youyi claims that as the weather warms and construction projects increase, the demand for downstream aggregates will increase rapidly.

He analyzed that the 2022 Chinese government work released multiple tasks during the “two sessions”(the National People's Congress &the Chinese People's Political Consultative Conference) this year shows that infrastructure construction will still be the focus of the aggregates market this year, and the biggest driving force for the market demand for aggregates is the construction of a modern comprehensive three-dimensional transportation network. The tasks are listed below: moderately advanced infrastructure investment; focus on the construction of water conservancy projects, comprehensive three-dimensional transportation networks, important energy bases and facilities, and speed up the renovation of urban gas pipelines and other pipeline networks to improve Flood control and drainage facilities, and continue to promote the construction of underground integrated pipe corridors; promote the coordinated development of Beijing-Tianjin-Hebei, the development of the Yangtze River Economic Belt, the construction of the Guangdong-Hong Kong-Macao Greater Bay Area, the integrated development of the Yangtze River Delta, the ecological protection and high-quality development of the Yellow River Basin, and high standards and high quality of the Building of the Xiongan New Area and support the construction of the sub-center of Beijing; promote urban renewal in an orderly manner, strengthen the construction of in-process facilities and disaster prevention and mitigation capabilities, start the renovation of a number of old urban communities, and promote barrier-free environment construction and aging-friendly renovation; strengthen county towns Infrastructure construction, etc. 

Judging from the latest statistics, dozens of cities across the country show signs of loosening of the property market after the year, such as lowering the down payment ratio and lowering the mortgage interest rate, Hu Youyi believes, "This year's Government Work Report once again clearly insists that houses are used for living. At the same time, the report proposed to explore new development models; promote the construction of affordable housing and support the commercial housing market to better meet the reasonable needs of buyers; promote urban renewal in an orderly manner; promote urbanization construction with county seat as an important carrier. In addition to the above-mentioned information such as lowering the down payment ratio and lowering the mortgage interest rate, the real estate market this year will be better than in previous years."

However, he also believes that although the loosening of the property market may drive the steady growth of the real estate market in 2022, it is difficult for the real estate market to experience explosive growth on the premise of insisting on housing rather than speculating.

Kong Xiangzhong, executive chairman of China Cement Association, also has expectations for infrastructure growth in 2022. He has previously analyzed that the “Implementation Plan on Reinvigorating the Operation of the Industrial Economy and Promoting the High-quality Development of the Industry” issued by the Central Economic Work Conference, the National Development and Reform Commission and the Ministry of Industry and Information Technology shows a clear signal that the growth of the industrial economy is regarded as a stable national economic growth, and the moderately advanced infrastructure investment will be taken as an endogenous driving force for economic development, which enhances the confidence in the future development of the cement market. “The key to stabilizing economic growth is to do a good job in industrial production. Regarding the moderately advanced infrastructure construction, the Ministry of Finance has issued a special debt quota to the provincial finance department to be approved in advance in 2022 to stimulate effective investment and strengthen the construction of key areas, which is conducive to promoting construction of infrastructure projects; in terms of real estate, we will adhere to both rental and purchase, accelerate the development of the long-term rental market, promote the construction of affordable housing, support the commercial housing market, and implement city-specific policies to promote a virtuous circle and healthy development of the real estate industry.” Kong Xiangzhong said.

Kong Xiangzhong predicts that cement demand will have an upward process in 2022, and the overall demand throughout the year will remain at a high level.