Is There Overcapacity in Cement Industry?
Cement overcapacity is weak link surplus. Wrong regulation policies such as restrictions on purchase, price and credit have led to falling sales of commodity homes. In addition, government investment in low-rent housing is far from enough. Therefore, construction industry has become the short stave of the bucket of macro economy, which has worsened overcapacity in cement industry.
Overcapacity happened twice in cement industry in 1994 and 2009. In fact, in these 2 years, cement output surged with high market demand. The so-called overcapacity is in its nature the elimination of obsolete capacity.
When the basic demand for residential housing is satisfied, average per capita cement consumption, following the inverted U-curve, will gradually decline and stabilize at a certain level. The conditions that could give rise to declining demand for cement include: first, total population falls; second, urbanization rate stabilizes; third, per capita cement consumption stays unchanged or shrinks. Demand for cement will fall when at least one of these three conditions is fulfilled. Statistics show Chinese population and urbanization rate are still rising, and there is no sign suggesting per capita consumption is falling. None of the three conditions is fulfilled, so cement production in China will not reach the inflection point in short term.
In China, per capita living space is only 20 m2, much smaller than that in countries with similar population density (like Netherlands, Japan, and Britain). The demand for improving housing conditions is still high in urban area. If per capita living space reaches 30 m2 in 2030, another 29.7 billion m2 of housing needs to be built in urban area, which is larger than the total living space of urban residents in 2015. The current construction speed could not meet the need. Unless real estate industry makes bg progress, short supply is bound to happen.
Price of commodity housing is so high in large cities that it is beyond the reach of the working class, but this does not mean they have no demand for housing. Apart from commodity housing, government should also build low-rent housings. If more investment is made for low-rent housing, overcapacity will be unlikely in cement industry.
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