20160201-中国银河国际证券-Muted_Market_Activities_before_CNY__Removal_of_Bulk_Cement_Surcharge_12页_1mb

China Cement Sector Summary

Core Content

The China cement sector experienced muted market activities as the Spring Festival approached, leading to a decline in construction project activities in the eastern, southern central, and southwestern regions. This slowdown affected market demand, which continued to decrease due to weather and festival-related factors. Despite the reduced demand, cement inventories increased slightly, as factories entered their annual maintenance period.

Cement prices remained stable at an average of RMB241 per tonne nationwide. Coal prices, however, showed a slight upward trend, with the comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) increasing by RMB2 per tonne to RMB374 per tonne. The annual year-on-year (YoY) change was a 26.8% decrease.

The removal of the "bulk cement special fund" by the Ministry of Finance, effective from February 1, had a limited financial impact on the sector. This fund was previously collected from cement producers who sold in bags, which are less environmentally friendly. Smaller players, who typically sell more in bags, were more likely to benefit from this removal. For example, CR Cement, which sold 48.7% of its 35m tonnes of cement in bags in 2014, could save up to RMB35m, equivalent to only 0.83% of its 2014 net profit. Even with a lower net profit in 2015E and 2016E, the cost savings were expected to be a small single-digit figure.

Main Points

• Market Activities: Construction projects slowed down in key regions due to the Spring Festival and weather.
• Demand and Inventory: Daily sales volumes were at 30%-60% of normal levels, while average inventory levels rose slightly to 73.72%.
• Cement Prices: Prices remained stable at RMB241 per tonne, with no significant changes.
• Coal Prices: Increased slightly to RMB374 per tonne, but YoY prices fell by 26.8%.
• Policy Impact: The removal of the bulk cement surcharge had limited financial benefits for large players, with smaller players benefiting more.
• Stock Performance: Cement stocks showed a weak performance, with an average decline of 3.5%. Anhui Conch was the best performer, rising 1.9%, while Anhui Conch was the weakest, losing 8.2%.

Key Information

• Valuation Table: Includes PER (x), EV/EBITDA (x), and Net Debt/Equity (%) for various cement companies.
• Peer Comparison: Provides a comparison of market cap, PER (x), PBR (x), and EV/EBITDA (x) across different companies.
• Regional Cement Price Breakdown: Figures 1-5 illustrate the cement prices in major cities across different regions of China.
• Clinker Capacity Breakdown: Table highlights the regional distribution of clinker capacity for various cement companies.
• Market Share in Terms of Clinker Capacity: Table outlines the market share of different companies in various regions of China.

Summary of Key Figures

Conclusion

The cement sector in China is currently experiencing a slowdown in market activities, with limited financial benefits from the removal of the bulk cement surcharge. Despite this, the sector's performance is influenced by regional variations in demand, inventory levels, and pricing. The overall market sentiment remains cautious, with stocks showing weak performance and limited upside potential.