■ Tang Xun Ming Jin Yang Yang Dongsen

In 2022, China's economy is facing demand contraction, supply shock, expected weakening of the "triple pressure", superimposed on some housing enterprises capital explosion, the new coronary pneumonia epidemic repeatedly and other multiple adverse factors, economic growth slowed down significantly. Although in the moderate advance investment policy to promote the infrastructure to play a strong role in the bottom, but the shortage of funds, consumer confidence in the downturn led to this year's building materials industry-wide profits fell sharply, the overall performance can be summarized as "supply and demand decline, high costs, profit contraction, average price down".

In 2023, consumption may be difficult to rebound in the short term, the real estate industry is still in the downward channel, infrastructure is still the main force to bear the steady growth, it is expected that in 2023 the building materials industry "supply and demand continue to contract, the cost is high, the average price volatility narrowed, the bottom of the profit is not high". In this context, the industrial chain of various varieties of building materials may accelerate the integration, optimize the industrial structure, and actively respond to the opportunities and challenges brought by changes in market supply and demand.

　　Review of Construction, Real Estate and Infrastructure 2022

As real estate enters a downward cycle, industry margins in the construction industry have declined significantly in recent years. However, under the policy of "steady growth and steady expectations", the total output value of the construction industry in 2022 reversed the trend of a significant decline in the single-quarter growth rate in 2021, and the year-on-year growth rate in the current quarter gradually stabilized. As of the third quarter of 2022, the cumulative year-on-year contribution of construction GDP reached 10.51 per cent, up 7.58 per cent from the same period last year.

Based on the development process of economy and urbanization, the past 20 years have been a "bull market" in the development of my country's construction industry, with a total output value of nearly 30 trillion yuan. In 2023, China's construction industry will also enter a period of high-quality development in sync with economic development.

With the steady growth policy further effective force, the start of major projects around the world to lay the foundation for infrastructure investment in 2022, the industry continues to heat up, investment continues to exert strength.

According to incomplete statistics of "Centennial Construction", in November 2022, a total of 5008 projects were started across the country, an increase of 77.09 percent from the previous month; the total investment was about 3620.61 billion billion yuan, an increase of 116.95 percent from the previous month and an increase of 35.53 percent year-on-year.

Since entering the downward cycle in the second half of 2021, the real estate industry in general is hardly optimistic. According to the National Bureau of Statistics, from January to November 2022, the construction area of real estate development enterprises was 8968.57 million square meters, down 6.5 percent from the same period last year. Among them, the residential construction area of 6339.16 million square meters, down 6.7. The area of new housing starts was 1116.32 million square meters, down 38.9 percent. Among them, the newly started residential area of 817.34 million square meters, down 39.5. The completed area of houses was 557.09 million square meters, down 19.0 percent. Among them, the completed residential area of 404.42 million square meters, down 18.4. From January to November 2022, from the cumulative year-on-year growth rate, only three provinces and cities real estate development investment increased slightly year-on-year, of which Zhejiang increased the most, with a year-on-year increase of 4.36; 28 provinces and cities showed negative growth year-on-year.

Since November, the real estate policy around the increasingly active, from around the mortgage interest rate down to debt stock financing "three arrows", to avoid the spread of the credit crisis, the industry policy environment warm up, demand gradually marginal improvement. In the central level policy warm wind blowing, real estate fundamentals or gradually repair. Under the "insurance subject", "insurance building" and "guarantee delivery", the real estate completion and recovery in 2023 can be expected.

　　Review of the domestic building materials market in 2022

Focusing on the building materials market, high inflation in Europe and the United States, repeated domestic epidemics, real estate downturn and other factors have become the main drag on material prices. Overall, the prices of major domestic building materials will show a downward trend in 2022.

According to the "Centennial Building" data, as of December 28, 2022, the national cement, concrete, sand and gravel, disc scaffolding, glass prices fell 17%, 13%, 9%, 17% and 25% year-on-year, but the construction of wood in foreign supply contraction, raw material costs, driven by the price rose 2% year-on-year.

In terms of cement, prices are showing a trend of high and low in 2022. Among them, the northeast region has the largest decline, reaching 22%, mainly due to the serious overcapacity of local cement. North China has the smallest decline, with an annual average price decline of 5%. On the one hand, North China has strict environmental protection control, cement companies have better implementation of peak production, and inventory pressure is not great; on the other hand, local coal prices are higher, and there are many infrastructure projects. Cost and demand are two-way bottoming.

In terms of concrete, prices fell to a new low in the past three years in 2022, with a large decline in Central China, South China, Northeast China and East China. Overall, the overall demand for concrete is still in the doldrums due to the continued weakness of new construction data, repeated epidemics and increased competition in the industry. According to the "Centennial Building" data, as of December 7, 2022, the concrete capacity utilization rate of 506 companies nationwide was 13.87 percent, down 7 percentage points year-on-year.

In terms of sand and gravel, in the first quarter, under the influence of the epidemic to suppress demand, sand and gravel prices fell significantly; in the second and third quarters, the weather warmed up, the prevention and control situation improved, superimposed on the downstream demand rebound, sand and gravel prices rebounded; in the third and fourth quarters, the progress of some projects slowed down, sand and gravel prices stable weak operation. However, it is worth mentioning that due to the support of infrastructure demand, the gravel mainly used for key engineering projects accounted for more than 50% of the shipments in the "Centennial Building" survey sample.

On the glass side, domestic float glass prices continued to decline in 2022 after reaching nearly five-year highs in the first quarter. in stock prices fell to a near five-year low in the second and third quarters. The overall year showed a trend of first up and then down, with a maximum amplitude of 36.85 per cent during the year. The main reasons are: after the second quarter, the demand side, especially the real estate performance is weak; the sales are not smooth, the inventory of production enterprises continues to accumulate, the imbalance between supply and demand is more prominent; the pressure of enterprise loss operation is great, and the pessimism is increasing.

　　Building Materials Market Outlook to 2023

Looking forward to 2023, domestic economic growth still faces huge challenges and pressures. First, the epidemic is likely to continue into the first quarter, and nationally, urban infection rates have peaked in January, rural areas or later than cities in February, and the impact of the epidemic on the economy and the construction sector starting in March is expected to accelerate. In addition, the expected weakening will remain one of the heavy pressures on economic growth in 2023, and the persistent lack of confidence will shift from a short-term impact to a long-term, I .e. the scar effect of the economic pressure ahead in 2022. The author believes that a rational view of China's economic growth in 2023 will return to more than 4%, but it is difficult to reach 5%. In this context, the main areas of demand for building materials will continue to be dominated by "infrastructure support", and the downward pace of housing construction will at least slow down.

At the infrastructure level, the policy of stabilizing the economy and investment continues to increase. Recently, the outline of the strategic plan for expanding domestic demand (2022-2035) proposed to optimize the investment structure and expand the investment space. The outline of the expansion of effective investment to increase manufacturing investment support, the system layout of new infrastructure and other deployment, "infrastructure steady growth" to get fiscal policy support is also continuing to deepen, infrastructure investment and manufacturing investment, consumption together to become the most promising 2023 growth point.

Relevant research shows that China's per capita infrastructure capital stock has only reached 20% to 30% of that of developed countries, and the demand potential of "old infrastructure" still exists. With the advancement of urbanization, we need to pay attention to the construction of modern infrastructure system, public service facilities in the field of people's livelihood and other fields.

From the housing construction level, "housing does not speculate" under the premise, by the policy tilt, the total amount of housing construction projects will be better than 2022. In the first half of the domestic "guaranteed building" will accelerate the completion of the stock project, material supply enterprises may improve the return. With the recovery of real estate sales, the decline in new project starts is expected to narrow significantly, and demand for building materials is at least flat year-on-year.

To sum up, looking forward to the construction materials market in 2023, the overall situation can be summarized into three aspects: first, the macro background and consumption level will be better than that in 2022, in which infrastructure construction will mainly play the role of "supporting the bottom", and the downward speed of housing construction will slow down but it is difficult to bring about increment; Second, the supply side is under great pressure, most varieties cannot get rid of overcapacity, and regional competition will further intensify; third, it is expected that the overall level of building materials prices is difficult to rise year-on-year, profits will continue to contract, but the industry return situation improved, the industry will pay more attention to high-quality development.

In terms of cement, according to the statistics of "Centennial Construction", there are 1545 cement clinker production lines nationwide, down 3.4 percent from the same period last year, and the annual production of clinker can reach 1.718 billion million tons, down 8.5 percent from the same period last year. Among them, 26 cement kiln lines are planned to be built nationwide in 2022, and 9 cement clinker production lines are actually put into production. The production time is mainly concentrated in the first half of the year. The total annual clinker production capacity is 15.24 million tons, a decrease of 52% over the same period. At present, backward production lines of 2500t/d and below still occupy a large share in most parts of China, mainly concentrated in southwest, east, northwest and north China. Among them, the head enterprises take the lead in eliminating backward production capacity, but whether it can resolve the contradiction of overcapacity still needs to be observed. In 2023, the utilization rate of cement clinker capacity may continue to decline, cement clinker production will be further reduced, and due to the high cost of raw materials such as thermal coal, weak end demand and other factors, the average cement price is expected to move down throughout the year, the cement industry profits may continue to shrink.

In terms of concrete, it is inevitable that competition in the concrete industry will intensify in 2023. In this context, domestic concrete enterprises to accelerate the acquisition, leasing business mixed site. In addition, the demand for capital is weak, the living space of private concrete enterprises may be further compressed, and the industry concentration will increase. In the future, concrete enterprises will shift from market-driven to resource-driven, and the living space of a single concrete business will become smaller and smaller. Concrete enterprises need to rely on the possession of resources to develop the industrial chain and build the value chain. On the price side, concrete prices fell back several times in 2022 and continued to run weakly. New housing construction continued to be weak, most concrete enterprises in hand orders fell sharply year-on-year, it is expected that the price of concrete in 2023 may be weak and stable, it is difficult to improve before the second quarter.

In terms of sand and gravel, the policy of infrastructure projects in 2023 will be strong, high-standard river sand will be widely used, and the price of natural sand will show a steady rise. In addition, with the vigorous implementation of green mining and other concepts, the call for the replacement of natural sand by machine sand is getting higher and higher, while environmental protection control is more stringent, resulting in the rise of the cost of machine sand, state-owned central enterprises to increase the intensity of mining, downstream competition is more intense, it is expected that the late machine sand price is weak operation.

In terms of gravel, 2023 infrastructure is still the cornerstone of stable economic growth, gravel consumption mainly depends on road, railway, waterway construction, taking into account the policy landing still need time, it is expected that the price of gravel in the later period shows a trend of first decline and then rise.

(Author Unit: Centennial Architecture Research Institute)

　　This article was originally published in the first edition of China Building Materials News on January 16.

Editor: Ding Tao

Supervisory Review: He Dan