With disappointing economic data emanating from China recently, a number of domestic cement producers have issued profit warnings for the first half of 2012 of between 30-50 per cent. While some of these manufacturers have reported improving market demand since the second quarter, pressure on cement prices is likely to persist.
 
An increasing number of Chinese companies across the board are feeling the pinch of a slowdown in the overall economy as investment, factory output and retail sales have weakened. Export growth has been hit by a fall in demand from two of its biggest markets, the US and Europe. Yesterday, in a surprise move, China's central bank cut interest rates for the second time in two months in a bid to reverse the economic slowdown. In the 1Q12, the economy expanded 8.1 per cent from a year earlier, the least in almost three years. Second-quarter figures will be released next week and the economy is widely expected to have increased by just 7.6 per cent – its sixth successive slide in growth. However, some analysts are hopeful the world's second-largest economy would have seen the worst between April and June, and that growth would pick up in 3Q12 as Beijing further loosens monetary policy and steps up infrastructure spending.
 
In early June, Anhui Conch became the first domestic cement producer to issue a profit warning for the 1H12 saying that earnings would fall more than 50 per cent. It noted that cement demand growth had declined and cement prices had dropped significantly compared to the same period of 2011. Net profit for the first quarter this year fell 43.6 per cent to CNY1.25bn, the company said, adding: "Since the second quarter of 2012, despite a rebound in cement demand in China's cement market, cement prices have remained at low levels." Net profit for the six months ended June 2011 was CNY5.99bn.
 
Since Conch's announcement, a number of other producers have issued warnings of a similar scale. Gansu Qilianshan Cement also expects a 50 per cent drop while Shanshui Cement, a Shandong Province-based company, forecast a 40 per cent decline. China Resources Cement said it expects "significant decreases" to the US$264m it achieved in 1H11 while China Tianrui Group Cement said it expects net profit to be down around 30 per cent in 1H12. The company stated that while "there has been a rebound in market demand for cement products in Central China and Liaoning province and the sales volume and selling prices of cement products of the company has generally increased and remained relatively stable as compared to the prior quarter, but were still lower as compared to the same period in 2011."
 
Cement output in the first five months of this year has slowed sharply. Figures from the National Development and Reform Commission (NDRC) showed that output increased just five per cent to 793.98Mt compared to a 14.3 percentage point increase in the same period last year. The sharp decrease in growth was attributed to economic slumps both at home and abroad. The building material sector has further particularly weighed down due to the government keeping real estate controls in place. The NDRC statistics further state that the cement sector recorded a 60 per cent YoY fall in first quarter earnings during the period. For last year, Ministry of Industry and Information Technology (MIIT) data showed that cement output rose 11.7 per cent to 2.09bnt. The MIIT expected the output growth to drop under 10 per cent this year.
 
Cement prices as of mid-June averaged CNY336.25/t (US$52.7/t), according to local press reports, and UBS states that while a pick-up failed to transpire in the 2Q, a brighter picture may not emerge until 3Q: "We believe that it takes more time for policy easing to take effect and drive demand up. We do not expect the fundamentals to turn around until late 3Q12." Analysts at brokerage Daiwa, however, have noted "green shoots of recovery" for China's cement sector. It says growth for infrastructure investment has rebounded for three consecutive months and industry inventory levels are set to fall. "We expect the government's policy loosening to accelerate construction activity, resulting in an uptrend for cement demand and prices starting from 2H12."