China’s cement industry will likely see a steady recovery following a consolidation that will close smaller inefficient firms while a booming economy will spur domestic demand, Morgan Stanley said. "With the government’s tightening policy on small-scale cement producers, we see a steady trend of industry consolidation ahead," said analysts Oliver Du and Alex Gong in a research note. The consolidation, likely to benefit leading cement firms, together with domestic demand driven by China’s ongoing urbanization, are expected to stabilize the industry, the note said.

Global funds are showing long-term interest in China’s cement sector. Morgan Stanley and the World Bank Group last December agreed to acquire 14 percent in Anhui Conch Cement Co, China’s largest cement maker.

China will cut the number of cement makers by a third and double the average production capacity by 2010, the National Development and Reform Commission, the country’s top economic planner, said last month. The commission also plans to form 10 major cement groups by 2010, with each having a yearly output of more than 30Mt, that will together control 30 per cent of the domestic market.

Cement prices halved to 200 yuan (US$25) a ton last year from 400 yuan a year earlier on overcapacity and rising fuel costs, which caused more than a third of the Chinese cement makers to lose money. The investment bank also sees favorable trends in other building-materials sectors such as gypsum board and glass fiber industries in China.

"We expect to see 25 per cent to 30 per cent consumption growth in the domestic gypsum board sector underpinned by government’s initiatives on replacing bricks by gypsum board as the production process of the latter is more energy efficient and environmentally friendly," said the note.