Concrete steps for tackling overcapacity

Two workers carry a bag of cement at a construction site in Shanghai. [File photo/IC]

Cement company shifts emphasis overseas as it seeks to escape cost pressures in a tough domestic market, report

Making the best of a tough situation is a virtue that one Chinese company is embracing as it grapples with a crowded domestic market.

"Even as some industries face overcapacity in China, capacity is urgently needed elsewhere," said Tao Feng, chief financial officer of the South African subsidiary of cement producer Jidong Development Group Co Ltd.

"Financial support is crucial in successfully shifting businesses that are operating on thin profit margins," said Tao, who was interviewed in Limpopo, the northernmost province of South Africa.

The subsidiary, Mamba Cement Co (Pty) Ltd, was jointly established by Women Investment Portfolio Holdings Ltd and limestone miner Continental Cement (Pty) Ltd - both based in South Africa - and the China-Africa Development Fund and the Jidong group.

It was incorporated in 2010 with total investment of 1.75 billion rand ($163 million).

Jidong, a developer of cement plants and the largest cement producer in northern China, and the CAD Fund have a combined 51 percent stake in the project.

WIP holds 23.9 percent, and Continental Cement has the remaining 25.1 percent.

The deal represents a significant foreign direct investment in the local cement industry.

After four years of negotiations on financing models, construction of a cement plant in Limpopo started in February and is expected to be completed in the first half of 2016. The plant will turn out about 1 million metric tons of cement a year, Tao said.

"The project is Jidong's first business overseas. The group has huge cement production capacity at home, but cement prices have been low in recent years. Rising environmental concerns have restrained development of the industry, which uses a lot of energy. That is where the idea of going abroad came from."

One of the group's listed member companies is Tangshan Jidong Cement Co Ltd, which accounts for 60 percent of the GDP of the city of Tangshan, Hebei. The city accounts for the lion's share of the GDP of Hebei province.

Hebei - saddled by overcapacity and often blanketed, as are surrounding regions, by heavy smog - is tackling overcapacity in industries such as cement, iron and steel by closing or moving facilities.

The provincial government has said it aims to relocate 60 million tons of cement production this year.

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