Since the beginning of this year, China’s sand and gravel market appears to have continued its previous downturn, plunging into a trough. Why has the sand and gravel market fallen into this situation? Does this mean that the golden age of the sand and gravel market is unlikely to return? What will be the future trend of the sand and gravel market?

　　Sand and gravel prices keep falling relentlessly.

“Right now, our quarry sand and gravel selling price is just over 30 yuan per ton—there’s virtually no profit left at all, and most mines have essentially ground to a halt.” Despite having entered late March—the period when the sand and gravel market typically starts to pick up—Yuzhou City’s sand and gravel market, a key base for building materials in Henan Province, has not only failed to improve but has instead plunged into its lowest point in nearly four years. Sand and gravel prices have fallen by two-thirds compared to their peak levels. Speaking to a reporter from the China Mining News, the owner of a building materials mine in Wuliang Town, Yuzhou City, expressed considerable anxiety.

　　In fact, several other sizable sand-and-gravel mines in Yuzhou City are facing a similar predicament and have almost come to a standstill. According to available information, although the average price of sand and gravel in Yuzhou has been on a downward trend over the past four years, industry insiders remain optimistic, generally believing that the lowest average price will not fall below 50 yuan per ton. However, since the start of the Year of the Tiger, despite the sand-and-gravel mines in Yuzhou being full of confidence and brimming with vigor, the market has failed to deliver. Unknowingly, the average price of sand and gravel has now plunged to its lowest level in recent years. Yan Yajun, Chairman of Yixin Building Materials in Yuzhou City, calculated for the reporter: “In 2019, the average price of sand and gravel in Yuzhou was 95 yuan per ton; by 2020, the average price had dropped to 75 yuan per ton; by 2021, it had further fallen to 55 yuan per ton. And by March 2022, it had plummeted again to just 35 yuan per ton.”

　　“By observing a single spot, one can grasp the whole leopard.” The situation in Yuzhou City’s sand and gravel market—typical of the Central Plains region—is far from optimistic, and other regions are no better off. According to available information, even Lanzhou in the northwest, despite being the provincial capital, continues to experience persistently low prices for sand and gravel aggregates, with prices hovering at only 30 to 40 yuan per ton and volumes remaining modest. Sand and gravel prices in Hubei Province have also declined somewhat. According to relevant monitoring data, overall sand and gravel prices in Hubei Province saw a slight drop in February. Since entering March, however, there has still been no sign of improvement. At Minben Mining in Hubei Province, sand and gravel prices have fallen by more than 10 yuan per ton.

　　In the economically developed Jiangsu and Zhejiang regions, sand and gravel prices have been on a relentless downward trend since the fourth quarter of last year. “Since November last year, after a brief rebound triggered by the dual energy-control measures, sand and gravel prices have been falling steadily ever since. This is the first time in my more than 20-year career that I’ve seen such a situation. Even during periods when sand and gravel aggregate prices surged across China, Huzhou’s sand and gravel aggregate prices remained relatively stable. But from the fourth quarter of last year until now, the price per ton of sand and gravel aggregate in Huzhou has fallen by 10 to 15 yuan year-on-year.” Yao Shaowu, general manager of Huzhou Xinkaiyuan Crushed Stone Co., Ltd., who has been deeply involved in the sand and gravel industry for many years, finds the current dramatic shift in the sand and gravel market somewhat puzzling.

　　Multiple factors combined make it difficult for demand to pick up.

　　Since the beginning of the Year of the Tiger, China’s sand and gravel market has been sluggish, with prices continuing to decline—due to a variety of factors.

　　First, after the Spring Festival, due to the impact of the pandemic, construction activities across the country have generally been sluggish, and payment delays have become quite severe. As the largest consumer of sand and gravel—the real estate industry—has been mired in a prolonged slump over the past few years, the negative effects are now starting to show up in the sand and gravel market. In Yuzhou City, local real estate developers suffered a serious blow during the Spring Festival period due to epidemic prevention measures and city-wide lockdowns, leaving only a handful of projects resuming work since March. The situation in Zhengzhou, their primary sales market, is also far from optimistic. According to insiders, although it’s already March, the real estate market in Zhengzhou remains eerily quiet; several well-known property companies continue to remain in a dormant phase, with very few new residential developments being launched.

“Under the influence of the national ‘housing is for living, not for speculation’ policy, the nature of real estate has clearly changed—from an investment asset on people’s balance sheets to a consumer good. Moreover, looking at the real estate cycle, the previous round of real estate growth lasted relatively long; this time, having just entered a downturn, the cycle is unlikely to end quickly. Furthermore, large, leading real estate groups that were hit hardest earlier have suffered substantial losses and will need time to recover. As a result, we expect the sand and gravel aggregate market to remain affected for the next three to four years,” analyzed Yao Shaowu.

“Affected by the dual pressures of real estate regulation and financial deleveraging, residential construction starts plummeted in 2021. Coupled with the decline in domestic infrastructure investment after reaching its peak, as well as factors such as reduced government investment funding, power restrictions, and environmental inspections, these multiple influences have directly impacted the market demand for sand and gravel aggregates, putting downward pressure on aggregate prices,” said an industry insider from Hubei Province, who shares the same view.

　　Second, sand and gravel mining rights continue to be allocated in large quantities, leading to a significant increase in sand and gravel production capacity. The price of sand and gravel is directly influenced by market trends. In recent years, with the concentrated allocation of a batch of sand and gravel mining rights, sand and gravel production capacity has surged rapidly, largely curbing the sustained high levels of sand and gravel prices. According to the “2021 China Sand and Gravel Industry Operation Report” released by the China Sand and Gravel Association, in 2021, looking at the newly established major aggregate production lines across various provinces, Fujian and Shanxi each saw more than 10 new aggregate production lines; Henan, Guangxi, Liaoning, Guizhou, Anhui, and Hunan each added 6, 5, 5, 4, 3, and 2 key aggregate production lines, respectively; while Sichuan, Chongqing, Hubei, Shaanxi, and Shandong each had just one new line. In 2021, the number of newly established sand and gravel mining rights nationwide reached 805. Among these, Yunnan and Xinjiang ranked first and second in the country in terms of new sand and gravel mining rights, with 166 and 156 new rights, respectively. Heilongjiang and Guizhou each saw between 50 and 100 new sand and gravel mining rights. Jilin, Guangxi, Gansu, Hubei, Sichuan, Chongqing, Guangdong, Zhejiang, Shaanxi, Anhui, and Shandong each had fewer than 10 new sand and gravel mining rights. As of the end of 2021, there were approximately 15,000 sand and gravel mines nationwide.

“In the past two years, many large mines in Hubei, Jiangxi, Anhui, and other regions have been put up for sale. On the one hand, this reflects the industry’s need for scaled-up development in the sand-and-gravel sector; on the other hand, mineral resource exploitation—especially sand-and-gravel resources—has become a significant source of fiscal revenue for some local governments, second only to land sales. Capital is increasingly focusing on the sand-and-gravel industry not only because the current economic situation faces ‘triple pressure,’ but also because there are few better investment opportunities available. Although many investors have already recognized the risk of overcapacity in the sand-and-gravel sector, they’re still being swept along by the momentum,” admitted Mei Xiangfu, President of the Hubei Sand-and-Gravel Association.

　　Lai Zhiguang, president of the Guangdong Province Sand and Gravel Association, shares the same view. He believes that in recent years, whether in the Xijiang River basin or in cities such as Zhaoqing and Yunfu, Guangdong has approved a large number of major sand and gravel mining rights. The increase in these projects reflects strong market demand; however, as mining rights are gradually released, the market will also return to rationality.

　　In recent years, the Jiangsu and Zhejiang regions have stepped up their efforts to allocate sand and gravel mining rights, which has to some extent contributed to a downturn in the sand and gravel market. It is understood that, thanks to convenient water transportation, the local sand and gravel market in the Jiangsu-Zhejiang area not only relies on supply from local mining enterprises but also extends its reach along the Yangtze River to Hubei, Jiangxi, Anhui, as well as Shandong and Fujian provinces. As a result, market competition is set to intensify dramatically.

　　The sand and gravel market has a promising future.

　　Although the downturn in China’s sand and gravel market in the first half of this year has virtually become a foregone conclusion, some industry insiders remain optimistic and hold high expectations for the future trend of the sand and gravel sector.

“Due to factors such as peaking carbon emissions, dual control of energy consumption, continuously strengthened environmental protection and energy efficiency standards, the ongoing normalization of COVID-19 prevention and control measures, and the industry trend toward larger-scale and greener development in the sand-and-gravel mining sector, these factors will lead to a tightening of sand-and-gravel supply in 2022. We estimate that the annual supply of construction-grade sand and gravel will reach approximately 19.5 billion tons,” predicted Hu Youyi, President of the China Sand and Gravel Association. He further noted that demand for sand and gravel in 2022 is expected to remain generally stable, with a gradual downward trend amid stability. As the two major demand drivers for the sand-and-gravel industry—infrastructure development and real estate construction—their overall demand for sand and gravel may continue to contract. However, infrastructure investment plans for 2022 are likely to be laid out earlier than usual, and the issuance of special-purpose bonds is being front-loaded, which should invigorate the infrastructure market and boost demand for sand and gravel. Meanwhile, real estate investment is expected to remain stable and develop healthily, resulting in an overall decline in sand-and-gravel demand of about 1% to 2% for the year. Nevertheless, given the industry backdrop of both supply and demand experiencing slight contraction in 2022, transportation factors—which have significantly influenced sand-and-gravel price fluctuations—will see some improvement, alleviating supply tensions in certain regions and essentially achieving a balanced supply-demand situation. Consequently, the supply and demand for construction-grade sand and gravel in 2022 will still show a general downward trend. Based on industry data, the average annual price is expected to rise by 1% to 2% compared to 2021.

　　There are quite a few industry insiders who hold this optimistic view. Lai Zhiguang believes that the policies proposed at the Two Sessions in 2022—such as increasing central government transfer payments to local governments, supporting manufacturing and small and micro enterprises through tax and fee reductions, and moderately advancing infrastructure investment—represent positive signals for the sand and gravel industry as well as the broader construction materials sector. In 2021, the number of newly commissioned mines in the Greater Bay Area was relatively small, with most concentrated in the Huizhou region. It is expected that three to four new projects in Huizhou will gradually come on stream one after another; however, due to objective constraints, the deployment cycle will be slightly longer than initially anticipated. After the new mines in the Huizhou area begin operations, local prices may undergo some minor adjustments. Nevertheless, overall demand for sand and gravel in the Greater Bay Area remains robust, and it is unlikely that there will be any significant imbalance between supply and demand, meaning prices should remain roughly stable year-on-year. Taking the Greater Bay Area as an example, in 2022, Shenzhen plans to construct 16 subway lines totaling 226 kilometers, Guangzhou plans 11 subway lines, and the southern, eastern, and western loops of the Guangzhou-Foshan Ring Railway, along with Phase III of Dongguan’s Urban Rail Transit Line 2, have all been included in this year’s construction schedule. These projects are expected to effectively boost the steady development of the sand and gravel industry across Guangdong Province.

　　There are also quite a few people who adopt a cautious attitude toward the future sand-and-gravel market. Yao Shaowu believes that the impact of fluctuations driven by the law of value cannot be overlooked. Since 2010, thanks to favorable policies, sand and gravel have been in short supply in many regions, causing prices for sand and gravel aggregates to rise steadily across most parts of China. Legal sand-and-gravel enterprises have enjoyed strong profitability during this period; however, once this wave of policy benefits comes to an end, it will be extremely difficult to replicate such conditions again. At present, the sand-and-gravel aggregate market remains a seller’s market, with payments typically settled in cash. Eventually, though, the market will shift to a buyer’s market, and sand-and-gravel aggregates will face the issue of accounts receivable. Therefore, as long as sand-and-gravel aggregates can maintain reasonable pricing levels, that would be sufficient. Compared to the long-term price stability seen in developed countries, sand-and-gravel aggregate prices in some domestic regions are currently at high levels. As soon as low-cost regions begin to fill local markets through various channels, prices will ultimately return to a more rational range.

“Our economy is facing triple pressures: shrinking demand, supply shocks, and weakening expectations. At the 2021 Central Work Conference, it was timely proposed to prioritize stability while seeking progress steadily—and several major projects were appropriately advanced. In the medium to long term, this will undoubtedly be beneficial for our industry, helping to offset some of the impact caused by the downturn in the real estate sector. Overall, we estimate that, due to the combined effects of the real estate downturn and recurring COVID-19 outbreaks, sand and gravel prices in the Hangzhou-Jiaxing-Huzhou region will experience moderate fluctuations this year—showing a trend of steady decline,” analyzed Yao Shaowu.

　　Mei Xiangfu also noted that this year’s market trends are marked by considerable uncertainty. Everyone is waiting to see how project commencement progresses, and it remains to be observed whether demand can recover to normal levels. Meanwhile, the COVID-19 pandemic has clearly hampered project construction. The international situation is also not optimistic; after energy prices—such as coal and oil—have risen sharply, corporate costs will increase significantly, potentially even altering previously planned trajectories. (China Mining News)