2023-10-07 23:11:47
“Look to Jiangsu for Chinese architecture, and look to Nantong for Jiangsu architecture.” Nantong’s construction industry, known as the “Iron Army of China’s construction industry,” has been almost completely wiped out. The picture shows a factory worker in Nantong City, Jiangsu Province, welding building material parts on May 16, 2023. (STR/AFP)
[The Epoch Times, October 8, 2023](Reported by He Jiaxing, reporter of the Epoch Times Special Topics Department) After China’s real estate crash, all aspects of the construction industry were directly affected. There is a serious oversupply of steel and cement, and the price war in China has also extended overseas, affecting relevant global markets to varying degrees.
The “China Construction Iron Army” was almost completely wiped out
Epoch Times reporters recently called some cement companies in Nanning, Guangxi, China, but no one answered. Lei Ming (pseudonym), a senior construction engineer in Guangdong, told reporters on October 5 that cement and concrete production in many places has been suspended. Because almost all construction companies in Jiangsu have gone bankrupt, and the entire real estate market has been very poor.
Lei Ming mentioned that the bankruptcy of Jiangsu Construction Company has been a major event that has attracted much attention in the industry in the past two years.
There is a popular saying in the industry: “Look to Jiangsu for Chinese architecture, and look to Nantong for Jiangsu architecture.” Nantong’s construction industry, known as the “Iron Army of China’s construction industry,” has been almost completely wiped out.
The total output value of Nantong’s construction industry has long ranked first among prefecture-level cities in China. In the 2021 list of “The World’s Largest 250 International Contractors”, four Nantong companies were shortlisted – Nantong No. 3 Construction, Nantong Construction Engineering, Nantong No. 2 Construction, and Nantong No. 4 Construction. The total output value of Nantong’s construction industry exceeded one trillion that year, accounting for a quarter of the total output value of Jiangsu’s construction industry.
Nantong Third Construction has always been one of the leaders in Nantong’s construction industry, undertaking the construction of landmark buildings such as the Shanghai Oriental Pearl Tower and Jin Mao Tower. As a supplier of Evergrande Group, the Nantong Third Construction project has a large contract value. Its project payment settlement and capital return have been hindered by Evergrande’s debts. It once defaulted on wages to migrant workers. Starting from 2020, Nantong Third Construction’s capital chain has experienced problems. Evergrande’s thunder finally crushed it. Nantong Third Construction is undergoing debt restructuring, and 240 million shares in its name will be auctioned in May 2023.
In addition, Suzhong Construction was filed for bankruptcy liquidation at the end of 2021. Suzhong Construction, established in 1949, has always been a “AAA-level credit enterprise in Jiangsu Province” and ranks among the top 500 Chinese enterprises. It has built large-scale projects such as the Shanghai World Expo Museum of Four Kingdoms and the Beijing Air China Headquarters Building. Suzhong Construction is the contractor for many key projects of Evergrande such as “Evergrande City”, and is also considered to be one of the companies most affected by the thunderstorm in Evergrande.
Nantong No. 6 Construction Company is a benchmark “contractor” in China and has built many landmark buildings, including the Burj Khalifa, the world’s tallest building in the Middle East. In September 2022, Nantong Sixth Construction went bankrupt and reorganized, and 100% of its shares were auctioned.
There are also Nantong No. 1 Construction, Nantong No. 4 Construction, etc. that have been bankrupted and liquidated.
In 2022, according to incomplete statistics, 336 construction companies went bankrupt and reorganized in China within 5 months. In Jiangsu Province, China’s most economically developed province, 45 construction companies went bankrupt in one month last August. Chinese construction companies are facing a real estate winter, and the building materials industry has also fallen into an existential crisis. As they compete for a limited market for survival, price wars are inevitable.
Real estate crisis severely affects China’s steel and cement industries
In China’s steel consumption structure, construction steel, mainly infrastructure, residential buildings, commercial buildings, and factories, accounts for 60%. After entering the middle of 2021, the impact of the epidemic and the full outbreak of China’s real estate crisis caused a sharp decline in market demand for construction steel, overcapacity, and rapid decline in steel prices. Steel companies fell into comprehensive losses. By August 2022, 892 companies had suffered serious losses.
Almost all steel mills are laying off workers, limiting production, and cutting wages. In 2022, the real estate construction area will be further reduced significantly, and the decline in demand will lead to a significant decline in the demand for construction steel such as rebar and general wire.
The financial report of Baosteel Group, China’s top state-owned steel company with the best profits from January to March 2023, shows that revenue fell by 8.58%, net profit (net profit attributable to the parent company) lost 50.56% year-on-year, and net cash flow generated from operating activities fell 159.82%.
By June 2023, the price of rebar per ton has dropped from 4,600 yuan (approximately $657) to 3,600 yuan (approximately $514). Steel companies in many provinces and cities have gone bankrupt. The 23-year-old Delong Steel Plant suspended production and dismantled its blast furnace at the end of June. The petition by 3,000 employees to demand wages attracted foreign media’s attention to the wave of bankruptcies of steel plants in China.
Cement factories across China are also in a life-or-death dilemma.
According to a report from the China Cement Association, China’s cement demand will be sluggish throughout the year in 2022. Annual cement output will be 2.13 billion tons, a decrease of 10.5% from the previous year. The output is the lowest value in the decade since 2012. Cement prices also continued to fall. The price of building materials bulk commodity cement in July 2023 was 331 yuan/ton (approximately $47.3/TON), a year-on-year decrease of 13.35%.
After September 2023, there will be a nationwide price cut for cement. In Shandong, a major cement province, the lowest price in the market is 130 to 140 yuan per ton (approximately $19-$20/ton). The cement price of individual enterprises in Guangdong is 180 to 190 yuan per ton (approximately $26-$27/ton), setting the lowest price in Guangdong Province in the past 10 years. In Fujian, where there was almost no cement surplus in the past, cement prices have fallen back to their lowest point since 2017.
Some insiders said that many companies are currently reducing costs by reducing staff. Cement companies often shut down for holidays and cut wages by as much as 60%. The monthly salary of around 2,000 yuan (approximately $286) cannot cope with the increasing cost of living. I have no choice but to change careers or move to a relatively better company, hoping to increase my income.
Lei Ming said that China’s real estate feast has completely ended. The cement production capacity that used to be at the peak of demand is now severely overcapacity. A large number of small and medium-sized enterprises will fall in the price war. The situation is even more serious in major cement provinces.
The reporter checked the information and found that Guangdong Province, where the price war started, is China’s second largest cement province. There are at least six large enterprises in the region, including Conch Cement, China Resources Cement and the very powerful Taiwan Cement. Guangdong’s cement clinker production capacity reached 106.22 million tons. In the past, Guangdong’s annual cement demand in the real estate industry exceeded 50 million tons, accounting for more than 40% of Guangdong’s total cement demand. Nowadays, the demand in the real estate and infrastructure markets is severely shrinking. Even if various measures are taken to stagger the peak period and shut down kilns for 60 days, it will not solve the problem of oversupply. The cement market in Guangdong was inevitably hit by a “war between princes” and spread to other surrounding provinces and cities such as Guangxi.
In neighboring Guangxi, the full-year demand in 2023 is expected to be less than 70 million tons. In recent years, Guangxi has invested mostly in large-scale production lines of 5,000 tons and above. The actual cement production capacity of 75 production lines exceeds 170 million tons, resulting in serious overcapacity.
China’s real estate crisis has also affected global construction, decoration and other material traders at different levels. Only cement and steel are presented here.
China cement has little impact on global building materials market
According to a report by the European Cement Association, global cement production will be 4.1 billion tons in 2022, with China accounting for 51.5%. In 2021, China’s cement production will account for a higher proportion of 55.9%.
China’s cement industry has always been the largest in the world in output, but the cement produced is basically used domestically and has little impact on global supply and prices.
China Zhiyan Consulting data shows that China’s cement export volume in 2022 will be 1.96 million tons, a decrease of 10.9% compared with 2021. The main reason is the decline in international market demand, especially the sharp decline in real estate investment in the United States, China’s main cement export market, in recent years, resulting in a significant reduction in cement imports. Secondly, in recent years, China’s cement prices have been higher than the international market prices, losing competitiveness in the international market. .
Impact on steel markets around the world
Large-scale Chinese steel companies seek to dump steel products at low prices abroad, which has severely impacted neighboring Southeast Asia, which has close trade relations with China.
From January to June 2023, China’s steel export volume was 43.583 million tons, a year-on-year increase of 31.3%; the average export price was US$1,075.2/ton (approximately $153.6/TON), a year-on-year decrease of 24.7%.
Mainland Chinese steel companies sell steel products to Vietnam at low prices and are trying to enter Taiwan. This hurts Sinosteel (China Steel Corporation), Taiwan’s leading steel company. Sinosteel has slashed prices to prevent low-priced imported materials from mainland China from entering the country.
Since Taiwan’s Sinosteel Corporation established its plant in 1978, it only suffered a loss in the first year and made money every other year. However, it suffered a loss this year. Since August, Sinosteel’s stock price has fallen by 13.23%, falling to a two-year low.
Weng Chaodong, chairman of Sinosteel, once said bluntly that Sinosteel is facing the worst situation in history. The main reason is that after the real estate industry in mainland China collapsed, the economy was sluggish, and a large amount of steel was oversupplied, which could only spill over to Asian countries, leading to further deterioration in market conditions.
Weng Chaodong also said that futures traders in mainland China, in order to make profits from shorting futures, actually sold steel at low prices in the spot market, with a total amount of up to 1 million tons, causing damage to steel prices. This directly caused the Formosa Ha Tinh Steel Plant invested by Sinosteel in Vietnam to cut prices twice in a row in June, with a cumulative drop of US$82 per ton. The Hoa Phat Steel Plant in Vietnam, which cooperates with China’s MCC International, fell to US$70 per ton (approximately US$10/TON), causing customers to continue to wait and see.
However, Sinosteel also has the confidence to resist market pressure. Taiwan’s first self-made submarine “Hai Kun” was recently unveiled. Media reports on October 4 showed that the submarine’s super-tough military ship plate steel is a new generation of steel plate developed and produced by Sinosteel at a huge investment. This kind of steel is a strategic controlled product in various countries around the world and cannot be purchased at will.
Starting from the second half of 2022, affected by mainland China, the global steel industry has been impacted. However, the biggest price reduction is for ordinary steel commonly used in construction, and these steel products and companies are also affected.
High-grade steel products of special materials produced by the steel industries in Japan and South Korea are in hot demand, and prices are rising. High-end steel is used in aerospace materials, silicon steel sheets for electric vehicles, missiles and drones, etc. Japan is the largest supplier of specialty steel, and its stock prices bucked the trend.
Comprehensive data shows that China’s real estate market crisis has severely damaged the domestic construction industry and its material supply market. In particular, a number of steel and cement industries will encounter production shutdowns or bankruptcy reorganizations, involving a large number of unemployed people and immeasurable economic losses. However, its impact on the world The scope of influence on the materials market is relatively limited.
(Reporter Zhong Yuan contributed to this article)
Editor in charge: Lian Shuhua#
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