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An unprecedented consolidation is about to take place in China’s cement industry with an aim of concentrating at least 60 per cent of national capacity into 10 top producers by 2020.

The mainland’s cement association has petitioned policymakers to speed up consolidation in the sector, which is currently crowded with 3,500 producers.

The process is likely to involve many mergers and closures of cement plants, according to proposals that the China Cement Association submitted to the Ministry of Industry and Information Technology, and seen by the South China Morning Post.

Cement is one of the industries suffering from serious overcapacity in addition to steel and coal.

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Data from the industry association showed that China, which accounted for about 60 per cent of global cement output, had to cut 390 million tonnes of capacity and slash 130,000 jobs in the next five years to achieve a basic balance between supply and demand.

Ideally, about 20 per cent of capacity would be idle and about 15 per cent of cement producers would run at a loss. In the first step of the proposed consolidation, every mainland province would have two or three leading players that would jointly make up 70 per cent of the province’s capacity.

Big cement plants would be encouraged to swap production quotas and seek cross holdings in equity stakes.

To grease the consolidation, existing cement companies will pool together 20 billion yuan (HK$23.2 billion) for a restructuring fund, a move that is likely to benefit big players such as Anhui Conch, Huaxin Cement, Qilianshan Cement and Sichuan Shuangma Cement.

Analyst predicted the process could take time. “The cement industry still has a long way to go in shedding capacity and embarking on a profitable path,” said He Zhongying, an analyst at Huarong Securities.

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Song Zhiping, chairman of the nation’s leading cement maker China National Building Materials Group, said earlier this month that top players should shoulder the responsibility of industry consolidation.

The industry association made the proposals in July and nudged the ministry for a reply on September 18.

A short-term rebound in demand for cement and price could further complicate the consolidation process.

Both cement prices and earnings of cement makers started to rise in the first quarter and were now expected to peak in the final quarter, CICC analysts Chai Wei and Chen Yan wrote in a separate report.

SOurce: SCMP.COM