The decline in cement prices in some regions of China over the past week is due mainly to pressure from newly added capacity, UBS says in a report.

It notes the government’s announcement it will extend property-sector tightening further, to some Tier-two and Tier-three cities has hurt sentiment for the cement industry, especially in the H-share market.

But the house expects the impact of the extended restrictions is likely to be weaker than in Tier-one cities as the real living condition, not investment, is the demand driver in Tier-two and Tier-three cities.

In addition, UBS notes the government is determined to enhance hydro/irrigation investment and plans a large-scale inspection of progress on social housing, which it tips could boost cement demand in 4Q. UBS is still positive on the 2H11 demand outlook and doesn’t expect a sharp demand shortfall in the period.