China: cement prices to remain strong in 2H16

Chinese cement prices are predicted to rebound strongly in the remaining three months of the year, say analysts, thanks to rising domestic home prices, which have also boosted the share prices of cement manufacturers listed in the mainland and in Hong Kong. Total revenue of the 17 cement makers listed in the A-share market grew 4.8 per cent in 2Q16, while net profit hit CNY4.81bn (US$721m) reports South China Morning Post.

Growing numbers of mortgage applications have pushed up the average home prices in China’s four first-tier cities by over 30 per cent so far this year, and "the momentum could continue well into the fourth quarter and the first half of next year," say Jefferies analysts Po Wei and Howard Lau.

Jefferies expects construction demand in the second half to rise two per cent YoY, lower than the five per cent YoY growth reported in the first six months. Demand for cement in the second half will be largely reflected in the fourth quarter after floods in July and August disrupted most building activity, Jefferies said.

“We expect the seasonal rebound in demand to drive up cement prices strongly in core regions. Due to the low base effect...the cement price has risen by more than 10 per cent over the past month in east China,” the research house said.

Both the cement price and the earnings of cement makers started rising in the first quarter, and are now expected to peak in the final quarter, CICC analysts Chai Wei and Chen Yan wrote in a separate report.

The aggregate net profit in the first half was CNY4.25bn, down 27 per cent YoY, but many of the country's cement producers managed to return to profit in the second quarter.

China Galaxy ranked Shanghai-listed Anhui Conch Cement Co as the best-performing producer in the second quarter, with net profit, excluding non-recurring items, in the period rising 25 per cent YoY.