Mizuho 1038 cement

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Mizuho 1038 cement

  1. 1. Japan Industry Outlook / 38 2012 No.1 Table of Contents1, Comprehensive Industry - Japan 15, Broadcasting (Japanese only)2, Iron and Steel - Japan 16, Marine Shipping (Japanese only)3, Non-ferrous Metals - Japan 17, Logistics - Japan4, Paper and Pulp(Japanese only) 18, Electric Power - Japan5, Cement - Japan 19, City Gas (Japanese only)6, Chemicals - Japan 20, Retail - Japan7, Pharmaceuticals - Japan 21, Food and Beverage - Japan8, Petroleum - Japan 22, Food Service Industry - Japan9, Automobiles - Japan 23, Construction (Japanese only)10, Shipbuilding (Japanese only) 24, Real Estate and Housing - Japan11, General Machinery (Japanese only) 25, Travel and Tourism - Japan12, Electronics - Japan 26, Nonbank (Credit Cards & Credit) (Japanese13, IT Services - Japan only)14, Telecommunications - Japan 27, HR Service Industry (Japanese only) Contact: Industry Research Division Mizuho Corporate Bank, Ltd. mizuho.ird@mizuho-cb.co.jp
  2. 2. FY2012 Japan Industry Outlook (Cement) CEMENT Summary■ In FY2011, domestic demand is expected to increase slightly by 0.7% year-on-year to 41.9 million tons, boosted by housing starts and other private sector demand as well as the ongoing economic recovery since the global financial crisis. In FY2012, domestic demand is forecast to rise 2.7% year-on-year to 43.03 million tons thanks to a continuing recovery in private sector demand as well as additional public sector demand seen from the full-scale start of post-earthquake reconstruction work.■ Supply capacity reductions implemented in FY2010 meant that companies were forced to cut back on less profitable exports, and as a result, exports in FY2011 are expected to rise only minimally by 0.9% year-on-year to 10.05 million tons. In FY2012, exports are forecast to fall 8.2% to 9.22 million tons due to a further contraction in export capacity because of an increase in domestic demand.■ As a result, output is expected to increase in FY2011 for the first time in 6 years (up 1.9%) to 57.10 million tons thanks primarily to the recovery in private sector demand. In FY2012, output is forecast to rise once again (up 1.0%) to 57.69 million tons, boosted by an increase in both private sector and public sector demand. The kiln utilization rate is forecast to remain heightened at around 90%.■ In FY2011, Japan’s cement companies are expected to see an increase in profits as cutbacks in fixed costs from a reduction in production capacity implemented in FY2010 will positively affect full-year results. In FY2012, Japan’s cement companies are forecast to see a second consecutive year of higher profits on higher revenues, buoyed by the effects of increased demand and improved cement market conditions owing to tighter supply-demand. 1 Mizuho Corporate Bank, Industry Research Division
  3. 3. FY2012 Japan Industry Outlook (Cement)I. INDUSTRY TRENDS [Figure 5-1] Summary of Cement Demand and Supply[Actual] Brief FY10 FY11 FY12 FY11/1H FY11/2H FY12/1H FY12/2H (Unit) (Actual) (Estimate) (Forecast) (Actual) (Estimate) (Forecast) (Forecast) Cement Domestic demand (Th ou san d ton s) 41,614 41,902 43,032 20,339 21,563 20,888 22,144 Cement Exports (Th ou san d ton s) 9,967 10,054 9,225 5,212 4,841 4,782 4,442 Cement Imports (Th ou san d ton s) 574 577 593 298 279 306 287 Cement Output (Th ou san d ton s) 56,050 57,100 57,694 28,075 29,025 28,367 29,327[Rate of Increase and Decrease] Brie f FY10 FY11 FY12 FY11/1H FY11/2H FY12/1H FY12/2H (Un i t) (Actual) (Estimate) (Forecast) (Actual) (Estimate) (Forecast) (Forecast) Cement Domestic demand (%) - 2.6% + 0.7% + 2.7% + 2.6% - 1.1% + 2.7% + 2.7% Cement Exports (%) - 9.8% + 0.9% - 8.2% - 0.6% + 2.4% - 8.2% - 8.2% Cement Imports (%) - 24.1% + 0.5% + 2.7% + 9.1% - 7.2% + 2.7% + 2.7% Cement Output (%) - 4.0% + 1.9% + 1.0% + 3.2% + 0.6% + 1.0% + 1.0% Source: Compiled by MHCB Industry Research Division based on various materials. Note: Figures for FY2011 and FY2012 are based on MHBC Industry Research Division forecasts.1. Demand and Supply Trends FY2012 domestic In FY2011, nominal construction investment is expected to increase 5.5% to demand for cement is 43.4 trillion yen, as the recovery continues in the private sector since the global expected to rise 2.7% financial crisis, including in residential and nonresidential starts, and demand year-on-year, marking the second from post-earthquake reconstruction work has been seen in the second half. consecutive year of Although the long-term drop in demand from the manufacturing industry’s growth overseas shift will become more inherent in FY2012, post-earthquake reconstruction work will also move into high gear. As a result, in FY2012 nominal construction investment is forecast to rise 3.2% year-on-year to 44.8 trillion yen (see Fig. 5-2). Given this environment, domestic demand for cement in FY2011 is expected to increase 0.7% to 41.9 million tons, as the recovery in private sector demand should become a driver that offsets the downturn in public sector demand owing to delays in post-earthquake reconstruction and the low nature of specific cement consumption. In FY2012, demand from post-earthquake reconstruction work will shift into full swing and private sector demand is also expected to continue to increase. As a result, domestic demand for cement in FY2012 is forecast to rise 2.7% year-on-year to 43.03 million tons, marking the second consecutive year of growth. 2 Mizuho Corporate Bank, Industry Research Division
  4. 4. FY2012 Japan Industry Outlook (Cement) [Fig. 5-2] Domestic Demand for Cement and Contribution (M illion tons) (Trillion y en) 80 80 4% Public sector demand Nominal construction investment (right axis) 2% 70 70 0% 60 60 -2% 29 50 28 50 -4% 27 27 28 29 40 28 Private sector24 demand 40 -6% 20 20 20 21 -8% 30 30 -10% Private sector demand 20 39 36 20 -12% 33 31 31 30 28 26 23 22 21 22 10 Public sector demand 10 -14% Domestic demand total -16% 0 0 (FY) 01 02 03 04 05 06 07 08 09 10 11e 12e 01 02 03 04 05 06 07 08 09 10 11e 12e (FY) Source: Compiled by MHCB Industry Research Division based on Japan Cement Association materials. Note: Figures for FY2011 and FY2012 are based on MHBC Industry Research Division forecasts.The year-on-year Viewed by region, domestic demand for cement decreased for nearly everygrowth of demand in region in FY2009, but demand from some regions, such as major urban areas inthe Tohoku region Kanto, Tokai and Kinki, bounced back after the start of FY2010 on the back ofbounced back intopositive territory a recovery in private sector demand thanks to an increase in urbanstarting in August redevelopment projects and other factors. After the beginning of FY2011, urban2011 areas continued to see firm demand while later the Tohoku region also bounced back into positive territory in August 2011 in terms of year-on-year growth, indicating that demand is finally starting to pick up for post-earthquake reconstruction work (see Fig. 5-3). [Fig. 5-3] Shipment Volume Growth Rate for Domestic Cement by Region (Year-on-Year) Hokkaido Tohoku Kanto 1 Kanto 2 Hokuriku Tokai Kinki Shikoku Chugoku Kyushu Okinawa Total FY07 -5.4% -9.6% -6.2% -4.1% -7.3% -9.2% 0.6% -13.9% -3.8% -5.4% -9.3% -5.9% FY08 -10.6% -12.9% -6.4% -10.6% -6.5% -6.6% -13.7% -12.8% -11.8% -13.4% 1.1% -9.9%FY09/1H -7.7% -13.1% -8.1% -16.1% -9.3% -18.6% -24.1% -10.4% -13.2% -14.5% -2.9% -14.0%FY09/2H 4.4% -7.3% -22.0% -10.9% -9.9% -22.4% -19.1% -7.7% -11.9% -11.3% -7.0% -15.2%FY10/1H -6.4% -3.5% -7.8% 3.6% 0.0% -8.4% -5.0% -3.0% -8.9% -4.3% -4.9% -5.1%FY10/2H -13.0% -6.5% 7.3% -1.4% 1.0% 0.6% 7.0% -0.6% -6.6% -2.4% -0.5% 0.6%FY11/1H -2.0% -7.5% 7.7% 0.4% -4.2% 1.1% 2.5% -3.7% 1.1% 0.3% 4.0% 1.4%11/10, 11 -5.5% 4.7% 6.8% 0.7% -5.4% -5.9% 1.1% -1.3% 5.0% -7.2% -7.3% -0.0% Source: Compiled by MHCB Industry Research Division based on Japan Cement Association materials. Note: Kanto 1: Saitama, Chiba, Tokyo and Kanagawa / Kanto 2: Ibaraki, Tochigi, Gunma, Nagano and Yamanashi. 3 Mizuho Corporate Bank, Industry Research Division
  5. 5. FY2012 Japan Industry Outlook (Cement)Export capacity set Despite the positive export environment owing to a rise in demand fromto decline in Southeast Asia, cement exports in FY2011 are expected to increase only 0.9%FY2012 from an year-on-year to 10.05 million tons because Japan’s cement companies wereincrease indomestic demand forced to cut back on less profitable exports due to tightened supply-demand in Japan from a reduction in production capacity and an increase in domestic demand (see Fig. 5-4). In FY2012, cement exports are forecast to fall 8.2% year-on-year to 9.22 million tons because export capacity will be driven downward due to an increase in private sector demand, a rise in public sector demand from post-earthquake reconstruction work, and further growth seen in domestic demand.生産は前年比増Imports continue In FY2011, cement imports are expected to continue to decline only slightly byto remain at と 合加、能力減 0.5% year-on-year to 570 thousand tons. In FY2012, cement imports aredepressed levels 率わせて、稼働 forecast to remain roughly at the same level at 590 thousand tons because of anは大幅に改善 environment where it will be difficult to apply pressure on Japan-bound imports given increases in demand in other East Asian countries.Output should increase As a result, cement output in FY2011 is expected to increase for the first timefor the second in 6 years by 1.9% year-on-year to 57.1 million tons, as private sector demandconsecutive year inFY2012 will become a key driver. In FY2012, although domestic demand should increase in both the public and private sectors, the decline in exports will likely partially offset the effects from an increase in output. Therefore, cement output in FY2012 is forecast to increase 1.0% year-on-year to 57.69 million tons, marking the second consecutive year of growth, but the extent of this growth should be limited in nature.The kiln utilization In FY2011, the kiln utilization rate is expected to improve to near 90% becauserate should rise to cement manufacturers responded to the medium- to long-term contraction inalmost 90% in domestic demand by significantly reducing production capacity in FY2010 andFY2012 the rise in cement production volume in FY2011 should also contribute. In FY2012, the kiln utilization rate is forecast to increase further on the back of increases in output (see Fig. 5-5). This increase, however, should be attributed to temporary factors, such as post-earthquake reconstruction work, and as such attention should continue to be paid toward the risk of contracting demand structurally due to the overseas shift of companies’ manufacturing facilities. 4 Mizuho Corporate Bank, Industry Research Division
  6. 6. FY2012 Japan Industry Outlook (Cement) [Fig. 5-4] Cement Exports by Destination Region [Fig. 5-5] Clinker Production Capacity and Facility Utilization Rate (Million tons) (M illion tons) 12 90 100% Europe, Latin America and Africa P roduction 80 capacit y 10 (left axis) 95% 70 P roduction 8 60 90% Volume Middle East, Oceania and Other Asia 50 (left axis) 6 85% 40 AEAN 30 80% 4 Utilization rate 20 75% 2 East Asia 10 0 70% 0 01 02 03 04 05 06 07 08 09 10 11e 12e 01 02 03 04 05 06 07 08 09 10 11e 12e (FY)(FY) Source: Compiled by MHCB Industry Research Source: Compiled by MHCB Industry Research Division based on Japan Cement Association Division based on Japan Cement Association materials. materials and the “Cement Year Book”. Note: Figures for FY2011 and FY2012 are based on Note 1: Figures for FY2011 and FY2012 are based MHBC Industry Research Division forecasts. on MHBC Industry Research Division forecasts. Note 2: Clinker production capacity as of April 1 for each fiscal year. 5 Mizuho Corporate Bank, Industry Research Division
  7. 7. FY2012 Japan Industry Outlook (Cement)2. Market Conditions FY2010 price Given the soaring price of raw materials and fuel, Japan’s cement companies hike plan does not had planned to implement a 1,400 yen to 1,500 yen price hike at the start of pan out FY2011, but they faced difficulty following through in the wake of the Great East Japan Earthquake. With supply-demand tightening, however, the environment is in place to move forward with price hike negotiations. This combined with a rise in the price of fuel coal imports meant that cement companies were able to implement a 400 yen to 500 yen price increase in certain regions of Japan in the second half, such as Tokyo and Nagoya (see Figs. 5-6 and 5-7). In FY2012, the tight supply-demand environment will continue, and in light of the heightened level of fuel coal import prices, Japan’s cement companies should continue to see a favorable environment to raise prices enough to cover cost increases. As a result, Japan’s cement companies are forecast to record a boost in cash flows. [Fig. 5-6] Fuel Coal Import Market Conditions [Fig. 5-7] Cement Prices for Each Major City (JPY 17 thousand/ton) (JP Y thousand/ton) China 11.0 15 Australia Sendai Indonesia 10.5 Russia Fukuoka T okyo 13 10.0 Nagoya 9.5 11 Sapporo 9.0 Osaka 9 8.5 7 8.0 7.5 5 /1 /7 1 7 1 7 7 1 1 7 /0 /0 /0 /0 /0 /0 /0 /0 11 11 1 7 1 7 1 7 1 7 1 7 07 07 08 08 09 09 10 10 /0 /0 /0 /0 /0 /0 /0 /0 /0 /007 07 08 08 09 09 10 10 11 11 Source: Compiled by MHCB Industry Research Source: Compiled by MHCB Industry Research Division based on the “Construction Price Index”. Division based on the Ministry of Finance’s “Trade Statistics”. 6 Mizuho Corporate Bank, Industry Research Division
  8. 8. FY2012 Japan Industry Outlook (Cement)II. CORPORATE EARNINGS1. FY2011 Estimate Significant increase in In FY2011, Japan’s two major cement-focused manufacturers aggregate profits seen from consolidated sales are expected to rise 1.3% year-on-year to 940 billion yen, fixed cost reductions while aggregate consolidated operating profits should jump 55.1% year-on-year realized through capacity to 37 billion yen, marking signficant gains in profits (see Fig. 5-8). cutbacks and an As for the FY2011 operating environment, both companies reduced domestic increase in revenues production capacity in FY2010 to develop a structure to remain profitable even thanks to greater with domestic demand at the 40 million ton level, while the demand demand environment showed a continuing recovery led by private sector demand, and in the second half, post-earthquake recontruction work began to take shape, creating tight supply-demand conditions. As a result, sales are expected to increase from a rise in sales volume and improvements in cement market conditions seen in the second half. In terms of profitability, both companies’ reduction in fixed costs as well as the cost reduction effect from high facility utilization rates and the effect from improved market conditions should combine to drive profits significnantly higher.2. FY2012 Forecast Improved 年連続 国内は 2cash flows In FY2012, Japan’s two major cement-focused manufactures are forecast to see from the domestic 大幅増益予想 a 2.7% year-on-year increase in combined sales to 965 billion yen as well as a cement business should drive revenues further 48.6% year-on-year jump in combined operating profits to 55 billion and profits higher yen. The domestic cement business should see an ongoing recovery in private sector demand as well as additional public sector demand from post-earthquake reconstruction work hitting full stride. As a result, sales are forecast to rise owing to an increase in volume, and profits should also increase thanks to the effects of better revenues and improvements in cement market conditions on the back of tighter supply-demand conditions. In contrast, the overseas cement business is forecast to see a continuation of negative cash flows as both companies are facing balance sheet adjustment pressure in the United States and a recovery in demand remains unlikely. In China, inflation—once a concern—has peaked out, but the economy is slowing amid a deteriorating export environment, indicating both companies are forecast to continue to see losses in their overseas cement business. Nevertheless, the domestic businesses should offset these losses, as both companies are forecast to see the third consecutive year of higher profits on higher revenues. 7 Mizuho Corporate Bank, Industry Research Division
  9. 9. FY2012 Japan Industry Outlook (Cement) [Fig. 5-8] Cash Flow Trends[Actual] No. of companies FY10 FY11 FY12 (Unit) (Actual) (Estimate) (Forecast) Sales 2 (JPY 100 m.) 9,277 9,400 9,650 Operating profit 2 (JPY 100 m.) 239 370 550[Rate of Decrease and Increase] Brief FY10 FY11 FY12 (Unit) (Actual) (Estimate) (Forecast) Sales 2 (% ) + 0.4% + 1.3% + 2.7% Operating profit 2 (% ) + 260.8% + 55.1% + 48.6%Source: Compiled by MHCB Industry Research Division based on company financial statements.Note: Consolidated basis. The two companies are Taiheiyo Cement and Sumitomo Osaka Cement.Figures for FY2011 and FY2012 are based on MHBC Industry Research Division forecasts. 8 Mizuho Corporate Bank, Industry Research Division
  10. 10. FY2012 Japan Industry Outlook (Cement)III. TOPICS: Prominent Medium-term Business Areas Medium-term Japan’s industry experienced a host of major natural disasters in FY2011, operating starting with the Great East Japan Earthquake and tsunami, followed by environment change torrential rains in Niigata, Fukushima and the Kii Peninsula, and then major floods in Thailand. Due to its location atop countless fault lines and extratropical climate that brings large amounts of rainfall, Japan cannot avoid these types of natural disasters. The disasters seen in FY2011 also reminded Japan of the massive amounts of direct and indirect damages these can bring to the country. In recent years, public works spending has been slashed as policies shifted from concrete to people, and following this trend demand for both cement and concrete have declined. However, concrete structures, such as breakwaters and coastal levees, were effective in reducing a certain degree of localized damaged during the unprecedented March 2011 tsunami. Going forward, Japan must consider both tangible and intangible aspects of its disaster reduction and disaster prevention policies. Tangible, or infrastructure, aspects will certainly play a large role in this debate, and as a result, this may present an opportunity to change the downward fall seen in cement demand to date. Key success At the same time, Japan’s cement industry must not become complacement factors for the with current conditions. As mentioned above, despite heightened expectations cement industry toward cement, current government finances indicate it will be rather difficult to significantly increase sending on public works projects. Given this, Japan’s cement industry will need to establish a cost competitiveness and technical prowess that can deliver high quality cement efficiently and within a limited budget. SWOT analysis of Japan’s cement industry can be considered a world-leader in terms of its Japan’s cement environmental and energy conservation technologies. The concrete industry, industry however, still needs to make more efforts toward reducing costs across the entire industry, as it has yet to make progress in the rationalization of its operations. With its position within the broader and mature materials industry, the cement industry can be considered unique in that it is likely unable to generate new growth areas. As such, going forward Japan’s cement industry and concrete industry need to work together to thoroughly strengthen cost competitiveness as well as develop a supply structure that can enable the efficient construction of necessary disaster reduction and disaster prevention infrastructure within the financial constraints of today’s economy. Prominent growth As it is a mature industry, prominent medium-term growth areas for Japan’s areas cement industry will focus on its conventional core business of civil engineering and construction work. This is because the industry likely cannot generate new growth areas where significant growth in demand can be expected. 9 Mizuho Corporate Bank, Industry Research Division
  11. 11. FY2012 Japan Industry Outlook (Cement)Within these focus areas, the key to growth for Japan’s cement industry andconcrete industry will be reducing costs and improving production technologiesso that both can play a role in disaster reduction and disaster preventioninfrastructure projects, which have once again become a major focus followingthe recent natural disasters seen in Japan. Teijiro Inoue teijiro.inoue@mizuho-cb.co.jp Primary Materials Team Industry Research Division Mizuho Corporate Bank, Ltd. 10 Mizuho Corporate Bank, Industry Research Division

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