China Cement:ASP continues to fall in peak season
China cement ASP down for two consecutive weeks in peak season。
For the week ended 25 April, the cement ASP in China further declined, by0.28% w-w to CNY353/t (grade 42.5 product), as per Digital Cement (DC). TheYTD cement ASP fall in China has accumulated to 5.4% (CNY20/t); weattribute this mainly to cement demand being lower than market expectations,especially during the current peak season. South China and East China havebeen the worst performers in terms of cement ASP in 2014 YTD, declining11.8% (CNY48/t) and 9.1% (CNY37/t), respectively. We see very limitedupside potential for cement ASPs in the current peak season as demandgrowth is slower than market expectations.
East China cement ASP dropped due to sluggish demand growth。
The ASP in East China slid 0.8% w-w as of 25 April, spurred by 8.1% and2.9% ASP drops in Jiangsu and Anhui provinces, partially offset by the 4.7%ASP increase in Fujian province. Northwest China recorded an ASP drop of1.9% w-w as of 25 April, due to a 9.1% ASP fall to CNY300/t in Shaanxiprovince. The ASP in South China was up 0.9% w-w as of 25 April, mainlyowing to a 4.8% ASP increase to CNY440/t in Guangdong province. As weforesee a mild recovery in cement demand, we expect cement producers tosee limited improvement in supply-demand dynamics in the near term.
Inventory in East China further edged up。
According to DC, average cement inventory in China decreased marginally to68% and inventory in East China edged higher to 66%, as of the week ended25 April, showing de-stocking pressure. Despite the market entering the peakseason, we think the seasonal pick-up in construction demand in China maynot be strong enough to support a higher cement ASP, as the overall cementmarket still faces headwinds from high de-stocking pressure.
FY14F: We are less optimistic vs consensus; Neutral on Anhui Conch。
We are cautious on the China cement sector in FY14F as: 1) we forecastChina’s cement demand growth will likely surprise the market on the downside(we estimate 5% y-y growth vs. consensus at 6-8% y-y); 2) we expect newlyadded-in capacity to exceed market expectations (we estimate 4% y-y growth,vs. consensus at 3% y-y), and; 3) we think the abolishment of #32.5 productwill be negative for major players. We have a Reduce rating on CNBM andmaintain our Neutral ratings on Anhui Conch, CR Cement and Conch Venture.