Worldwide sales of aggregates for construction markets are forecast to increase to 53.2 billion tonnes by the end of 2017. Annual global growth of 5.8% is expected, of which at least half will be driven from China, according to the US industry market research company
Indeed,
According to the author of Freedonia’s latest World Construction Aggregates study, analyst Gleb Mytko, a lot of what’s published on China’s growth tends to be exaggerated. Nonetheless, many different analysts agree that construction spending growth in China will tend towards a little over 7% in coming years.
This is a similar figure to that of Japan and less than India’s 8%, but China’s gross spend on construction in 2012 came to a whopping US$41.2 trillion, according to global engineering consultant Aecom.
Infrastructure and non-residential construction are the main drivers, accounting for around two-thirds of aggregates demand in China. This is mostly concentrated in China’s east coast and south-eastern areas, and is focused on its rapidly growing megacities of that region.
Aecom’s 2013 Asia Construction Outlook (ACO) report predicts very strong (9%) growth in infrastructure in China. Railways in particular are the focus of a huge investment programme. The Chinese government’s rail plans include 90,000km of new track, with investment in urban rail transit expected to surpass RMB 700 billion ($108 billion), says the ACO report. China’s Ministry of Railways has said construction will focus on refurbishing existing rail lines and building the high-speed network.
Furthermore, there is construction of a new airport in Beijing and energy supply constraints are pushing development of China’s power infrastructure. The country is increasing its nuclear power capacity and investigating the potential of renewable energy.
Aecom’s survey of the Chinese construction market for the ACO report shows 67% of respondents expect a decrease in profitability. Competition is increasing, but the attractiveness of the market appears undiminished.
“Up and down China there are about 15 to 20 mega projects, like Nanhui New City, that would be huge on their own in most other countries. There are a lot of big projects going on,” says Mytko.
“When looking at the typical growth indicators, such as cement production, we’re still seeing significant growth which is an indicator of aggregates demand, but there will be a slowdown in absolute terms, simply because the growth has been so high historically.” Mytko says.
There are other interesting dynamics at play in China, Mytko adds. China is a net importer as a result of its high demand and because some resources, particularly sand and gravels, have been severely depleted.
“It seems China is encountering some difficulties with securing imports from neighbouring countries, some of which have grave concerns about the impacts of China’s demand. Governments are restricting exports to China to safeguard against non-sustainable practices,” says Mytko.
A slowing down of business growth in China was reported by
Metso’s mining and construction business has made a couple of key business moves over the past year. In 2013, Metso completed the acquisition of 75% of
| 2007 | 2012 | 2017 | 2007-2012 | 2012-2017 | |
|---|---|---|---|---|---|
| Construction Aggregates Demand | 30300 | 40150 | 53200 | 5.8 % | 5.8 % |
| North America | 3800 | 3050 | 3750 | -4.3 % | 4.2 % |
| Western Europe | 3275 | 2550 | 3000 | -4.9 % | 3.3 % |
| Asia/Pacific | 17350 | 27000 | 36500 | 9.2 % | 6.2 % |
| Other Regions | 5875 | 7550 | 9950 | 5.1 % | 5.7 % |
“The Shaorui acquisition helps us gain deeper knowledge of the products and customers in the Chinese construction markets and a better product portfolio for penetrating other emerging markets,” Metso said in a company statement.
In February this year, Metso announced that it had received full approval from the Chinese authorities for its 50/50 joint venture with LuiGong. The newly-formed
According to Metso, the initial scope of the joint venture will cover the design and manufacture of localised versions of Metso's Lokotrack mobile crushers and screens, the first of which is expected to be launched during the first half of 2014. The joint venture will also promote Metso's global track-mounted crushing and screening equipment in China.
“This joint venture enables the capture of a significant market share of the fast growing mobile crushing and screening market in China. Our target is to build a market driven technology offering and the joint venture with LiuGong is a major step towards this direction,” says Metso Mining & Construction president João Ney Colagrossi.
“Together with the acquisitions of a steel foundry in Quzhou City and Shaorui Heavy Industries announced last year, the joint venture significantly strengthens our supply capabilities for mining and construction industries in China.”
Metso now has around 1,500 employees in China. For mining and construction, its Chinese business now includes Metso Minerals’ crusher factory in Tianjin, repair facilities in Wuhan and spare parts distribution centres in Tianjin, Shanghai and Kunming, as well the operations of its new joint venture with LuiGong.
China represents Metso’s third largest country for net sales (behind the United States and Brazil), but provides only 8% of the company’s overall sales, less than the Africa & Middle East region. However, it is the potential for further growth in China which makes the country so rich in opportunity for companies such as Metso.
“China is still the global hot spot in construction. The rapid growth of this enormous country requires materials and the country’s massive construction markets are undoubtedly the world’s largest,” says Tommi Lehtonen, senior vice president Mobile Equipment Business Unit, Metso.
“The country is so vast that there is still a lot to do, but there you can clearly see the growing economy’s need for infrastructure development,” Lehtonen states.
So what is Lehtonen’s advice to construction industry suppliers looking to succeed in China? “Flexibility, agility, service and customer satisfaction are the keys to success,” he says.
“Like so many other industries, the world of construction has moved from manufacturing to delivering value-added service. The future winners focus on providing services and solutions rather than commodities.”
Meanwhile, China's cement output in 2013 rose by 9.57% year-on-year to 2.41 billion tonnes, up from 2.18 billion tonnes in 2012.
Only Shanghai, Liaoning and Hebei reported negative growth with Shanghai down by 5.65%.
The cement sector posted a total profit of CNY 76.60 billion ($12.57 billion) in 2013, up 16.4% from CNY 65.7 billion in 2012 but still down from CNY 102 billion in 2011.
The estimated capacity utilisation rate in 2013 stood at 76% compared with 74.4% in 2012 and 70.6% in 2011.
The per tonne profit for cement in 2013 increased to CNY 30.78 in 2013 from CNY 30.08 in 2012 but down from CNY 49.44 in 2011.
In 2013, only 72 new dry-process cement production lines were added compared with 102 lines in 2012; 166 in 2011 and 211 in 2010.
China National Building Material had the biggest share of cement clinker output in 2013 at 297.8 million tonnes followed by Anhui Conch at 156.1 million tonnes; Sinoma at 83.3 million tonnes; Jidong at 68 million tonnes and China Resources at 55.7 million tonnes.
