The COVID-19 epidemic has been repeated, the real estate industry has been cold, the domestic ceramic tile market demand has been weak, and production capacity has been severely overcapacity. In addition, the domestic demographic dividend has weakened, the dual-carbon policy has become stricter, and the production costs of the construction and ceramics industry have increased significantly. More and more Chinese ceramic companies Aim investment targets at emerging markets such as Africa, India, and Vietnam. Up to now, Chinese ceramic companies from Guangdong, Fujian, Zhejiang, Hubei and other regions have invested in the construction of ceramic factories in these countries, investing more than 10 billion yuan.
Accelerate overseas expansion
Overseas markets are popular
The market in China's building ceramics industry is becoming increasingly saturated, and the real estate market is experiencing fluctuations. If domestic ceramics companies only focus on the domestic market, their profits may not see growth, and may even continue to decline. This can be seen from the performance forecasts for the first half of 2022 released by six listed ceramic companies. Only two of the six listed ceramic companies have pre-profitable net profits.
Domestic ceramic tile production capacity is still in excess, so the kiln opening rate in various production areas is not high. On July 28, the Foshan Ceramics Industry Association released relevant statistical data on the ceramic industry in Foshan's jurisdiction in the first half of 2022. The output of wall and floor tiles was 370 million square meters, a year-on-year decrease of 13.3%. 35 ceramic construction companies have a total of 194 production lines, of which only 116 are in production, and the kiln operation rate is less than 60%. In addition, the situation of opening kilns in production areas such as Enping, Zhaoqing and Qingyuan in Guangdong is not much better than that in Foshan. Most ceramic companies have not reached full production capacity and are still reducing production.
Based on this, many ceramic companies have accelerated the pace of overseas market expansion. From January to now, 6 companies in Fujian and Shandong have successively passed the registration process for new or investment-increased ceramic production line projects in Saudi Arabia, Peru, Jordan, Ghana, Kenya, Angola, Congo (DRC) and other countries; Keda Manufacturing has increased its investment in Ghana Investment in construction ceramic production projects and Kenya ceramic sanitary ware production projects.
According to incomplete statistics, as of now, more than 25 Chinese companies including Keda Manufacturing, Guangzhou Senda, Wangkang Group, Times Ceramics, Ouya Industrial (Private) Co., Ltd., Marco Polo, Qiangsheng Ceramics, and Xinmei Ceramics have Invest and build ceramic production bases in Southeast Asia, the Middle East, Africa, North America, South America and other regions. Since 2019, Chinese ceramic companies have invested more than 10 billion yuan overseas.
In addition, the launching ceremony for the export of Neihuang ceramic products to Serbia was held on July 28 at the Neihuang County Ceramics Park in Anyang City, Henan Province. This marked an important step for Neihuang Ceramics to deeply explore the European market. It is understood that the current tariffs between Serbia and some EU countries are very low, and the China-Serbia Free Trade Agreement is in the advancement stage. Once officially implemented, the tariffs on ceramics will drop significantly, providing cost opportunities for yellow ceramic products to enter Europe.
It is not difficult to see that domestic ceramic companies are more inclined to invest and build factories in Southeast Asia, the Middle East, Africa, North America, South America and other regions, while Europe is particularly deserted. Why is this?
"Gas shortage" is getting worse and the cost of carbon emissions is high...
European ceramic companies sound "survival alarm"
Logically speaking, compared with countries in Africa, India, Vietnam and other countries, the construction ceramics industry in Italy, Spain and other European countries is more developed and the product technology level is higher. Why are Chinese ceramic companies more inclined to go to Africa, India, Vietnam What about investing in and building factories in less developed countries? In the final analysis, domestic ceramic companies still follow the "low-cost + large-scale" model when building factories overseas, focusing on low production costs, which European countries do not have.
Since June this year, Russia has significantly cut its natural gas supply to Europe, causing Europe’s “gas shortage” to intensify and natural gas prices to soar. According to CCTV reports, as of July 30, Gazprom has stopped supplying natural gas to six European countries. In addition, the production capacity of Russian natural gas supplied to Europe through the "Nord Stream-1" pipeline has been significantly reduced to 20%. Affected by this, the price of natural gas in the European market also exceeded US$2,300 per 1,000 cubic meters (equivalent to approximately RMB 15.5/m³) for the first time on July 27, local time.
The importance of natural gas supply to the production of ceramic enterprises is self-evident. At present, not only are natural gas supplies in many regions in Europe "stressed", but it is also difficult to find alternatives. Marcus Mid, CEO of Germany's largest energy companydot; Kreber recently stated that once Russia completely cuts off natural gas supply, Europe may face catastrophic consequences because there is currently no alternative at the EU level, and European natural gas prices will rise significantly by then. This is terrible news for the building and ceramics industry. In addition, due to the conflict between Russia and Ukraine, the procurement and transportation of raw materials have also been affected a lot.
Not only that, EU countries currently operate a strict carbon emissions trading system. Excessive emissions beyond the quota will face high fines. Currently, the fine is about 100 euros (approximately equivalent to RMB 690.34) for every ton exceeded.
Data released by the Spanish Ceramic Ceramic Manufacturers Association show that the local ceramic industry’s cost of purchasing carbon emission quotas has increased nearly six times in 2021, from 11.11 million euros (approximately 76 million yuan) in 2020 to 66 million in 2021. Euro (approximately 456 million yuan). Reasons for this include an increase in the price of carbon emission allowances per ton, with the average price rising from 24.75 euros per ton in 2020 to an average of 53.5 euros per ton in 2021. In addition, the free quotas allocated by the EU to the construction and ceramics industry are also decreasing, forcing ceramics companies to spend money to buy more carbon quotas. The cost for European ceramic companies to buy carbon quotas may increase by 55% this year. The Italian production areas are no different and also need to bear the high cost of "carbon emissions".
It can be seen from the above factors that European countries are not the best choice for Chinese ceramic companies to invest and build factories overseas.
Africa, India and other countries have huge infrastructure needs
Low labor, land and other costs
In recent years, governments in Africa, India and other countries have continuously strengthened the construction of infrastructure facilities to stimulate economic development, housing demand, etc. This is a big cake for domestic ceramic enterprises.
In order to stimulate the development of the manufacturing industry, the Indian government has successively launched policies such as the "Phase Manufacturing Promotion Project", the "Production-Related Incentive Scheme", and the "Electronic Components and Semiconductor Manufacturing Promotion Scheme". In addition, India has also launched a huge stimulus plan of 21 trillion rupees (approximately RMB 1.78 trillion) to stimulate the economy, infrastructure, market demand, and electronic manufacturing.industry development. During this period, India also launched a series of attempts to improve the business environment such as tax reductions for foreign investors, tax deductions and refunds, raising the upper limit of foreign ownership, expanding the investment "list", and improving bankruptcy protection. At the same time, India has a population size and market potential similar to China, as well as cheaper labor costs.
The report "South African Construction Industry: Key Trends and Opportunities to 2025" shows that starting from 2021, the development of the South African construction industry will gradually recover and is expected to grow by 9.1% in 2022. In addition, the annual growth rate of the local construction industry will be stable at 3.1% between 2023 and 2025. Although growth will be difficult to return to pre-pandemic levels during the forecast period, the industry will receive strong government support during this period, including large-scale infrastructure investment in transportation, energy, residential, telecommunications and industrial projects. In the latest budget announced in February 2021, the South African government announced plans to invest 49 billion euros (approximately RMB 343.5 billion) in public sector infrastructure.
Among them, the Ghanaian government has announced plans to build 8 million houses across the country by 2050 to address the growing population and existing housing shortage. Before 2030, Ghana will build 300,000 new housing units every year. At the same time, some industrial areas such as Accra and Kumasi will also be rebuilt to support the development of local industry. According to the Ministry of Water Resources, Works and Housing, Ghana has a housing shortage of more than 200,000 units, which means there is a huge demand for ceramic tiles.
In addition, India, Vietnam, Malaysia, Africa and other countries have all adopted "lay-down" anti-epidemic policies, and corporate production will not be greatly affected. Under the influence of various factors, domestic ceramic companies have set up factories in these countries one after another, not only reducing production costs, but also firmly occupying the local market share.
It is noteworthy that labor costs in some Southeast Asian countries have increased. Earlier, Vietnam’s National Wage Council decided to raise the regional minimum wage standard by an average of 6% from July 1 after the second round of negotiations. The resolution stated that starting from July 1, the minimum wage standard in the first-category areas will increase by 260,000 VND/month (approximately RMB 72.5), the minimum wage standard in the second-category areas will increase by 240,000 VND/month, and the minimum wage standard in the third-category areas will increase by 240,000 VND/month. The regional minimum wage standard will increase by 210,000 VND/month, and the minimum wage standard in the fourth category of regions will increase by 180,000 VND/month.
Amid the epidemic, this is the first time in two years that Vietnam has raised its minimum wage. If the resolution is approved by the government, the minimum wage in first-category areas will be 4.68 million VND/month (approximately RMB 1,305), in second-category areas it will be 4.16 million VND/month, and in third-category areas it will be 3.64 million VND/month. , 3.25 million Vietnamese in Category IV areasshield/month. Although overall labor is still relatively cheap, this change will also affect the location selection of ceramic companies to build factories.
As an early "going global" enterprise in the construction and ceramics industry, Keda Manufacturing is expected to make a profit of 2.1-2.2 billion yuan in the first half of 2022, a year-on-year increase of more than 400%. It is reported that Keda Manufacturing’s revenue from the African building materials business alone is as high as 2.345 billion yuan. By the end of 2021, Keda Manufacturing has operated ceramic factories in five countries: Kenya, Ghana, Tanzania, Senegal, and Zambia. A total of 12 production lines have been built, and the total output of architectural ceramics has reached 91 million square meters. The success of Keda Manufacturing is believed to have stimulated many domestic ceramic companies.
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The domestic construction ceramics market is facing a severe situation, and the market downturn has made it difficult for the industry to maintain its past high growth. As the Chinese market is highly saturated, ceramic companies are targeting emerging overseas markets such as Africa and India for expansion and investment. They may be able to open the door to wealth and become the next "Made by Keda" company.
