By Wang Xinyuan

New policies meant to reduce overcapacity of cement production may not work for two or three years due to implementation difficulties and conflicts of interest among local governments, a market analyst said on Monday.

The National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) will pass new industry guidelines to phase out China's 600 million tons of small-scaled production capacity over the course of three years starting 2010, reported the China Business News (CBN) citing unnamed sources yesterday.

This signifies a renewed effort to address overcapacity, said CBN.

Cement capacity totaled 300 million tons, but over 200 new production lines under construction will add 200 million tons.

Although capacity is increasing, profits are declining, said Zhu Hongren, the spokesman of MIIT during a press conference last month.

The average ex-factory cement price in July was about 277 yuan ($40.6), down 2.8 yuan ($0.4) from June.

Most of the regions except those in theNorthwest and Northeast had a price drop, MIIT said.

Cement output in the first seven months was 878 million tons, up 15.9 percent year-on-year.

Investment in the industry amounted to 79.2 billion yuan ($11.6 billion) in the same period, increasing by 65.8 percent year-on-year, much higher than the country's 32.9 percent growth of the overall investments on fixed assets.

MIIT recently drafted a proposal to restrict market access by new cement producers. Provinces with more than one ton of cement per capita will not be granted new licenses, according to the proposal.

Higher minimum capital requirements will also make it difficult for new firms to enter the market.

The promulgation of the new policy is good for the industry, Luo Guo, an analyst at Orient Securities, told the Global Times.

However, the key is implementation, the analyst noted.

A total of 250 million tons of low-tech cement production is to be cut during the nation's 11th Five-Year Plan period (2006-2010).

The existing policy is not very effective due to strong opposition from local governments. Cement production cuts also mean decreased revenues, Luo said.

In addition, "many production lines are already under construction. It's not possible to stop projects half way," said Li of China Jianyin Investment Securities.

There are about 3,000 small producers nationwide with annual production below 100,000 tons, estimated Zhuang Chun, executive vice president of CNBM North Cement Co Ltd. It will be difficult to close all of them in three years, he told CBN.

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