What is the future for the global construction materials market as the Chinese real estate crisis escalates?

Cement is one of the construction materials affected by China’s real estate crisis. The Vietnamese market has also been significantly affected.

The biggest decline in China’s cement production in at least two decades has dragged down global construction material output. This demonstrates how the country’s vast real estate crisis has affected other industries that rely on it for growth.

According to data provided by the World Cement Association (WCA), global cement output fell 8% year-on-year to 1.9 billion tonnes in the first six months of 2022.

The global decline was due to a 15% drop in cement production in China to 977 million tonnes, the WCA said. Ian Riley, chief executive of the WCA, said China’s decline was the biggest in more than 20 years, and bigger than any decline on record.

China’s property debt strike began in late June at a stalled Evergrande project in Jingdezhen, and has since spread to at least 301 projects in about 91 cities. Borrowers in the country are stopping their mortgage payments, a phenomenon that has deepened China’s housing crisis.

Home sales in China have been falling steadily since July last year. In the first seven months of the year, home sales in the country totaled 900 billion yuan (about $129 billion), down 30% from the same period a year earlier.

The property market crisis has dented the wealth of Chinese people, who traditionally put most of their wealth into real estate. Homebuyers’ refusal to pay off their debts and pessimism will cause demand to decline, leading to price cuts, creating a dangerous spiral.

Gary Ng, senior economist at Natixis CIB (Asia Pacific), said that China is unlikely to see a quick recovery in the real estate sector in the second half of 2022. That will continue to be a drag on China’s economic growth.

The cement data is a sign of the growing spillover effects on other industries that benefited from the previous construction boom. Official data shows that new construction in China has fallen by more than 40% year-on-year each month since April.

“We have seen a construction boom in China in recent years. Cement companies are expecting that they are going to get cement business for these big infrastructure projects,” said Riley. “But then the combination of the property crisis and China’s zero-Covid policy really hit the business hard.”

Shares of China’s major cement makers have been hit hard. Anhui Conch Cement and China Resources Cement, two of the country’s largest, each saw their Hong Kong-listed shares fall for the third time this year.

Other commodities such as iron ore — a raw material for steelmaking — have also been hit by weakness in China’s property sector. Maike Metals International, a major importer of refined copper, said it was selling assets to survive the liquidity crunch caused by property problems.

Beijing has responded in recent months by announcing a series of actions to boost the economy and property sector, including stimulus packages worth tens of billions of dollars.

With the domestic situation, the cement industry Vietnam’s cement industry is in a state of “both surplus and shortage”. There is a surplus of cement supply when production capacity exceeds domestic market demand and there is a lack of large-scale cement factories.

In recent months, the cement export channel has continuously decreased, domestic consumption has almost stagnated, while production costs have increased too high, posing a great threat to the operations of many cement factories.

Currently, the prices of input materials for cement production such as coal and transportation costs have increased sharply. Meanwhile, the consumption of this item has slowed down, and large inventories have caused cement production enterprises to face fierce price competition pressure.

According to the Vietnam Cement Association, inventories are a major concern for many cement enterprises today and a major challenge for the industry in the last months of 2022.

It is forecasted that from now until the end of the year, cement exports will continue to decline. Accordingly, the decline in export channels may increase competitive pressure in the domestic market. China and the Philippines, the two main import markets for cement and clinker, have reduced imports from Vietnam, leading to a sharp decline in the past 8 months.