Investment bank Nomura is bearish on China cement but is less positive than the market on 2Q13 and 2013 demand growth and potential average selling prices (ASP).
The house has analysed 138 railway projects in China and found the net incremental cement consumption for 2013 for 2013 to be 16t less than last year.
Normura also explored more reliable property new-starts data and concluded that cement demand from the property sector would fall 1.1 per cent YoY in 2013 to 615Mt.
It believes any potential ASP upside surprises would therefore come from supply constraints not demand growth. However, decreasing coal price shifts the supply curve out, lowering cement ASP and causing margins to contract as well asa the cost gap, meaning major cement players are more affected.
Normura has lifted its target price for Anhui Conch to HK$20 from HK18 to reflect better-than-expected cement ASP in the 4Q12 and maintained its “reduce” call. The research house, however, is also less positive than the market on future cement ASP movement in Conch's key areas, East and South China. It thinks the peaking demand in the East and excessive new capacity in South China for 2013 are the two biggest negative drivers of Conch's stock price. The slowing of Conch's capacity growth in 2013F appears set to cap its potential volume sales, Nomura added.
