There’s been a sinking feeling about cement producers for much of the last year thanks to a tepid economy, but the sector has had a dramatic comeback in recent weeks, with major counters leading the rally.
Of the 19 mainland-listed cement stocks, 16 booked revenue growth in the first three quarters and six reported increases in net profits.
Cement prices plunged this summer after the industry was targeted in the central government’s crackdown on overcapacity, but China Cement Association figures show a rebound in prices, with the average cement price gaining for eight consecutive weeks as of the end of November. The aggregate rise was about 20-30 yuan (US$3.29-4.94) per tonne.
The turnaround is largely driven by the Communist Party’s pledge to accelerate rural land reform and unlock fundraising for infrastructure upgrades, pointing to another spike in cement use for the various projects mushrooming nationwide. This policy shift also coincides with the peak construction season when builders rush to finish projects by the year’s end.
Xinhua reported that more than 1,000 loss-making cement producers were merged or shut down last year in the government-led industrial overhaul, squeezing out about 220 million tonnes in excess capacity. The Industry and Information Technology Ministry said this year’s capacity cuts could be well over 93 million tonnes. The push is believed to benefit key players in the sector because they can swallow smaller rivals and consolidate their market share.
Although cold weather will force a temporary stop to work on various projects in northern China, demand will remain robust in Guangdong, Zhejiang, Jiangsu, Fujian and Guangxi, where local cadres continue to walk the well-trodden path of using investment to spur the economy. That demand in southern China has effectively offset the declines in the north, with third-quarter cement prices reportedly rising 21 percent in Guangdong and 15 percent in Guangxi.
Analysts said that firms like China Resources Cement (CR Cement, 01313.HK) and Anhui Conch Cement (00914.HK), which have a strong presence in these burgeoning eastern and southern provinces, are better poised to reap the rewards.
CR Cement said in its interim report that more than 70 percent of its operating revenues were generated in Guangdong and Guangxi. With 14 plants in these regions, the firm can effectively tap into a number of mega projects like the Guangzhou-Shenzhen-Hong Kong express rail link, the Hong Kong-Macau-Zhuhai Bridge, and the Guangzhou-Zhuhai high-speed railway.
– Contact the writer at [email protected]