China Basic Materials Monthly:New report;September 2013—Regional divergence

Feedback from our channel checks suggests on-the-ground end-user demand outlook as of early September has improved MoM. Construction demand is expected to be better, yet only in selected regions (due to moderate picks in property and continued robust local government infrastructure projects).

    We view the trend better than the seasonal pattern in 2011-12. Yet the early indications in construction demand is pointing to highly divergent outlook by regions-we see visible pick ups for eastern and southern regions yet potentially muted/weak pickups in northern regions, based on near-term orderbook of selected local steel mills, and change of utilisation hours of excavators across key regions.

    Forward order book trend of end-users improved MoM-the percentage of respondents expecting a MoM improvement moved up to 50% in September 2013.

    We continue to like Shenhua, CR Cement, and Jiangxi Copper. Our least preferred stocks are Zhaojin, Yanzhou and Angang.