Jan. 8 (Bloomberg) -- Anhui Conch Cement Co., China’s biggest cement producer by market value, plans to add as much as 30 million metric tons to capacity through acquisitions amid a government drive to consolidate production.
“Almost all the big cement producers are buying,” Executive Director Guo Jingbin said in an interview in Hong Kong yesterday. “Our direction will lean toward acquisitions in the next few years and we have sufficient funds.”
With the Chinese government seeking to limit new factories as part of a drive to reduce emissions and improve the environment, Anhui Conch and its rivals have to expand by buying assets. Cement demand for the building of subways and roads may improve this year as projects approved in 2012 get started on, Guo said.
The Chinese government announced plans to build 2,018 kilometers (1,254 miles) of roads and subway projects in 18 cities two years ago to step up stimulus efforts to boost economic growth. Work on most of the projects haven’t started and may kick off this year, Guo said.
A 30-million ton increase would be equivalent to 14.4 percent of Anhui Conch’s 2012 capacity of 209 million tons, the last year for which data is available. The Anhui province-based company had a record 10.3 billion yuan ($1.7 billion) in cash as of the end of September, according to data compiled by Bloomberg. The company had total debt of 23 billion yuan for the same period.
“Because their balance sheet is so strong, they can acquire something really big,” said Rachel Cheung, an analyst at BNP Paribas Securities Asia. “Maybe like one of the top 20 cement players.”
The market share of the ten biggest cement producers in China increased to 32 percent in 2012 from 12 percent in 2007, Cheung said. Their share will keep growing, she said.
Anhui Conch is also seeking to add as much as 10 million tons of capacity in Southeast Asia in the next three to five years, Chairman Guo Wensan said yesterday at a press conference.
With the government cracking down on overcapacity and limiting new startups, the average selling prices of Anhui Conch’s products and gross margin will improve in 2014 from last year, Executive Director Guo said at the same conference.
The Ministry of Industry and Information Technology in July ordered more than 1,400 companies in 19 industries, including cement, to cut excess capacity. The land ministry in November told local authorities to ban allocations for new production projects by industries including cement, according to the official Xinhua News Agency.
About 35 percent of Anhui Conch’s products are used for infrastructure construction, 35 percent for real estate and the rest in agricultural projects, Director Guo said.
Shares of Anhui Conch rose as much as 3.4 percent in afternoon trading in Hong Kong, the biggest gain since Dec. 3, before closing 2.7 percent higher at HK$26.85.
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