In 2023, the development of the sand and gravel industry was not satisfactory, with policy changes and a downward market. Colleagues in the industry struggled to move forward. What changes will happen to the sand and gravel industry in 2024? Will the clouds be cleared and the sun be seen, or will the prospects remain confusing? Combined with the various signs of previous industry development, the author makes some predictions, and welcomes more colleagues in the industry to participate and discuss the future development situation.

PART.01 Infrastructure demand rebounded sharply, and the real estate market slowly recovered

As a recognized "infrastructure madman", China's infrastructure strength and speed are unquestionable. In recent years, the domestic market demand for sand and gravel aggregates has been hovering at a high level, which is inseparable from a large amount of infrastructure and real estate market demand. In recent years, due to weak real estate investment, market downturn, local fiscal debt crisis, sluggish infrastructure and other reasons, the pressure of overcapacity in traditional building materials industries such as sand and gravel and cement industries has increased.

In December 2023, the Central Economic Work Conference set the tone to resolve real estate and local debt risks and accelerate the transformation of urban villages. Accelerate the construction of affordable housing, public infrastructure for both peacetime and emergency use, and urban village renovation, etc. Improve relevant basic systems and accelerate the construction of a new model for real estate development.

Combined with the previous 1 trillion special national debt + 2.7 trillion local debt, in 2024, infrastructure construction and key projects will be accelerated and put into operation, the real estate market is expected to pick up, and the market demand for sand and gravel aggregates is guaranteed.

PART.02 Shipping index may become the biggest variable affecting the price of sand and gravel in the Yangtze River Delta market

In 2023, the shipping index hovered at a low level, and sand and gravel companies along the river and coastal areas were anchored in the Yangtze River Delta market. According to incomplete statistics, in 2023, the Yangtze River Delta region imported nearly 200 million tons of sand and gravel aggregates, including a large amount of materials from Northeast China, Shandong, and Fujian. The price of sand and gravel along the Yangtze River Basin continued to decline, hitting the bottom at the end of July. From November to December, the traditional peak season for coal demand and foreign trade flows stimulated a significant increase in the shipping index, and the amount of foreign sand and gravel decreased sharply.

In 2024, if the international shipping demand is large and the shipping index continues to rise, there will be fewer domestic trade ships, and the freight rates in coastal areas will hover at a high level, which will block some coastal areas from sand and gravel aggregates. At that time, the competition among sand and gravel enterprises in the Yangtze River Basin will not be particularly fierce, and the aggregate price may also increase slightly; but on the contrary, if the shipping index continues to fall, a large number of ships will transport sand and gravel aggregates along the coast, and the market competition will intensify, it is not ruled out that the sand and gravel enterprises in the Yangtze River Basin will change from price-cost-profit to volume-cost-profit.

PART.03 Competition and cooperation among large enterprises will become the norm, and the progress of strong alliances and upstream and downstream alliances will be further strengthened

Sand and gravel enterprises have bid farewell to the era of fighting alone and are about to enter a stage of close alliance between strong forces.

In recent years, the pace of cooperation between upstream and downstream industries such as large-scale building materials, cement, engineering, and concrete has become closer and closer. In particular, the integration trend of the traditional building materials industry chain of cement-commercial concrete-aggregate is obvious, and engineering units and port terminals are gradually joining in. There are constant news that large enterprises such as China Power Construction, China Building Materials, China Energy Construction, Conch Cement, China Construction Western Construction, and China Railway have signed strategic cooperation agreements.

Sand and gravel enterprises have also moved from competition to competition and cooperation. For example, Huadong Materials, Zhejiang Transportation Resources Investment Group and Sufei Institute have jointly developed the Ruichang project of CNBM New Materials; CNBM and Minben Group signed a strategic cooperation agreement to strengthen cooperation in aggregates...

Healthy competition and cooperation can help promote the positive development of the industry. Enterprises can strengthen coordination, better play their respective advantages, jointly face the needs of end users, continuously improve the technical content of products and the quality experience of consumers, and create a better development format.

PART.04 Industry concentration may increase significantly, CNBM and China Power Construction will release a large amount of production capacity

In 2020, the total production capacity of the top ten sand and gravel production capacity is about 490 million tons. By 2022, the total production capacity of the top ten has exceeded 940 million tons. By 2023, the total production capacity of the top ten will reach 1.224 billion tons. The concentration of the sand and gravel industry is constantly increasing. In 2024, with the commissioning of many large-scale sand and gravel projects under CNBM and China Power Construction, the concentration of the aggregate industry may increase significantly.

According to the Aggregate Network, the 20 million ton annual output project of the Huanggongshan Mine in Congyang, Guichi Hengshan Mine, the 40 million ton annual output project of the Yuanchong Mine in Hanshan, Anhui Province, is expected to be put into production in 2024. In 2024, the East China Materials under China National Building Materials will increase its sand and gravel production capacity by at least 75 million tons.

The Huadu 11.1 million ton annual output project, the Guangdong Yangxi Fenghuangling 30 million ton annual output project, the Hubei Xishui Phase II 20 million ton annual output project, and the Hainan Wanning 5 million ton annual output project, which were originally scheduled to be put into production at the end of 2023, have been postponed for some reason and are expected to be put into production in 2024. In addition, the 70 million ton annual output sand and gravel mine in Qichun, Hubei is expected to be fully put into production in 2024, and the Yunfu Guanyinshan Mine 35 million ton annual output project will also be put into production in 2024. In this way, China Power Construction will have to increase its aggregate production capacity by at least 171 million tons.

In the middle of 2023, Huaxin's aggregate production capacity was 210 million tons. By the end of 2023, Huaxin's annual aggregate production capacity will be nearly 300 million tons. In addition to the projects that will be put into production in 2024, Huaxin's aggregate production capacity will also increase significantly.

The competition among China National Building Materials, China Power Construction, and Huaxin is more exciting than expected.

PART.05 Accelerated release of production capacity of large-scale sand and gravel mines

In 2023, although many large-scale mines have delayed their production progress due to various reasons, the production speed of large-scale sand and gravel mines has not slowed down, and the number is not small: China Resources Fengkai Dapai Mine 30 million tons per year project, Huaxin Wuxue 30 million tons per year project, Wuhu Conch 5 million tons per year aggregate machine-made sand project, China Power Construction Shangluo 9.3 million tons per year project, China Power Construction Nanjing Mine 7 million tons per year project, China Energy Construction Hulu Sand and Gravel 6.3 million tons per year project, Pingdingshan Wugang 5 million tons per year project, Ma'anshan Conch Green Building Materials 9.6 million tons per year aggregate intelligent machine-made sand project and other large-scale sand and gravel projects have been put into production one after another.

Even at the end of the year (December 30-31), two large-scale machine-made sand projects under Fujian Funeng New Building Materials Co., Ltd. held a completion and commissioning ceremony, with a total annual aggregate production capacity of 18 million tons.

Entering 2024, in addition to the above-mentioned large-scale projects to be put into production by CNBM and PowerChina, there are also many large-scale sand and gravel aggregate projects planned to be put into production: the first phase of Hengjin Mining's 20 million tons of sand and gravel project is about to be put into production (planned 35 million tons); Washi Mine's 20 million tons of sand and gravel project is expected to be put into production in the first half of the year; Jiangxi Ruiya New Materials' 12 million tons of sand and gravel project is expected to be put into production in the middle of the year; Xiaxian Zaoan Iron Mine's 10 million tons of fine aggregate production line is expected to be put into production in August; China Energy Construction Badong Industrial Park's 9 million tons of annual production project is expected to be completed and put into production in 2024...

PART.06 Prices are expected to fall steadily, and profit margins may be further squeezed

In 2023, the price of sand and gravel aggregates will continue to fall. According to the data from the Sand and Gravel Aggregate Network Data Center, the market price of sand and gravel aggregates in 2023 will drop by 6-7 yuan/ton year-on-year. Even in the traditional construction peak season of the third and fourth quarters, the market demand for sand and gravel aggregates has increased significantly, but the price is not satisfactory - it only maintains a small rebound level. It is worth noting that the demand and price of sand and gravel aggregates in the Guangdong-Hong Kong-Macao Greater Bay Area rebounded significantly in the fourth quarter (mainly due to strong regional market demand, relatively limited supply, and the release of new production capacity is not as expected. Guangxi and other riverside sources cannot enter in large quantities due to water levels).

In 2024, with the accelerated advancement of infrastructure construction and the recovery of the real estate market, it is expected that the market demand for sand and gravel aggregates will have a large room for recovery. Despite the hedges of foreign materials and the release of new regional sand and gravel production capacity, the general trend of rising demand remains basically unchanged, and the increase may exceed the amount of foreign materials and new production capacity. There may be a periodic sharp rise or fall in some local areas. Overall, the possibility of a steady decline in prices is relatively high, and the profit space of enterprises is further squeezed.

PART.07 Sand and gravel companies pay more attention to cost control and energy consumption control

From supply shortage to supply and demand balance, and even a comprehensive transformation of supply and demand relations, sand and gravel owners are increasingly controlling costs and energy consumption. In the past two years, the price of sand and gravel aggregates has continued to decline, and even dropped sharply. The profits of enterprises cannot be compared with the previous peak period, especially when the market supply and demand are going in the opposite direction (market demand continues to decline, while the supply of sand and gravel has increased significantly). The fierce market competition in some regions can be seen. Colleagues in the industry assert that there will be price wars in the future for sand and gravel aggregates, and they will soon enter the dangerous situation of "1 yuan determines life and death". Reducing investment and various production costs and energy consumption control have become an important means for enterprises to increase their competitiveness.

For enterprises that took mines at low prices in the early years and enterprises that took mines in installments in 2023 (especially in the second half of the year), the cost and financial pressure are relatively small. The financial cost pressure of sand and gravel enterprises that took full payment at high prices from 2021 to 2022 is huge. New projects continue to reduce investment budgets, and equipment localization has become a foregone conclusion. Many sand and gravel projects originally scheduled to be put into production in 2023 have also postponed the production time due to continuous modification and optimization of design and construction plans and reduction of various project costs.

PART.08 High-end premium aggregate market strengthens

The market for general sand and gravel aggregates is already a red ocean, while high-end premium aggregates are still a blue ocean market. In the early years, some colleagues predicted the current situation and called on enterprises to produce high-end premium aggregates.

Sand and gravel aggregates are low value-added products. The market has always been price-oriented, which has also led to manufacturers ignoring product quality. In recent years, the state has paid special attention to building quality safety, and measures such as lifelong accountability for quality have provided a good development soil for high-quality raw materials. The market is sluggish, and the prices of building materials are generally low. Premium machine-made sand and gravel can reduce the use of high-cost materials such as cement and cementitious materials in commercial mixes, improve the quality of commercial mixes, and reduce construction costs. This is also the reason why it is sought after. High-quality machine-made sand represented by Huaxin Yitong Line has been greatly recognized and affirmed by the market. According to the Sand and Gravel Aggregate Network, in terms of product proportion, Huaxin Yitong Line has now achieved an annual production capacity of 50 million tons, of which high-quality dry-process machine-made sand capacity accounts for more than 50%. The Huaxin Wuxue 30 million tons per year project, which was put into operation in April 2023, is also aimed at the high-end machine-made sand market. In the future, the high-end fine aggregate market will continue to strengthen.

PART.09 Equipment companies pay more attention to the needs of owners and upgrade internally

Thanks to the rapid development of domestic infrastructure in the past decade, my country's sand and gravel aggregate market accounts for about half of the global consumption. The huge market demand has spawned domestic sand and gravel equipment research and development and technological upgrading. Under the call of the times such as ecological civilization construction and high-quality development, domestic sand and gravel equipment has achieved remarkable achievements that have attracted worldwide attention. New products are constantly updated and iterated, and high-quality domestic equipment has gone abroad and entered the international high-end market.

With the transformation and upgrading of the sand and gravel industry and the reshuffle of the industry, the competition among sand and gravel equipment companies will become more intense, and all-round competition will be launched in terms of price, quality, intelligence, and service. While equipment companies are working hard on content and focusing on scientific and technological research and development, they also pay more attention to the needs of owners. At the same time, equipment companies will focus on other fields: rapid development with the help of the capital market.

From providing complete sets of equipment to providing EPC (O) general contracting (operation) services, and even cooperating to develop new sand and gravel projects, in the future, the internal competition of equipment enterprises may be further upgraded.

PART.10 Centralized procurement of central enterprises or downstream enterprises may become a trend

At the end of 2023, relevant units commissioned the Sand and Gravel Aggregate Network to find some medium and large sand and gravel mines along the river and coastal areas, and provide relevant units with sand and gravel aggregate suppliers with reasonable prices, stable supply, excellent quality and good service, so as to prepare for the centralized procurement of sand and gravel in 2024.

It is reported that eight central construction enterprises including China Construction, China Communications Construction, China Power Construction, China Railway, China Railway Construction, China Energy Construction, China Metallurgical Group, and China Chemical initiated the establishment of the China Construction Industry Supply Chain Cooperation and Development Alliance. In 2023, the alliance units proposed to further strengthen supply chain support through intensive procurement, strategic procurement, centralized supply, and realize efficient, stable and economic integrated supply chain to serve project terminals.

On the one hand, the problem of information asymmetry in the sand and gravel industry is still prominent, which has affected the budget and construction progress of engineering projects to a certain extent. Raw materials are completely dependent on market supply, and quality, cost, and technology cannot be independently controlled. Work stoppages, rework, and even social impact incidents caused by poor quality of sand and gravel basic materials still exist.

On the other hand, with the continuous improvement of the concentration of the sand and gravel industry, medium and large sand and gravel mines have good product quality, stable supply, centralized and efficient terminal logistics, and a favorable centralized procurement situation on the supply side.

The sand and gravel market is treacherous and uncertain. In the future, centralized procurement by central enterprises may become a trend.