DownwardtrendinChinacementASPcontinues.
Fortheweekended28March,cementASPinChinarecordedaslightdropby0.3%w-wtoCNY354/t(grade42.5product),accordingtoDigitalCement(DC).CementASPinChinahasbeenonadownwardtrend,decreasingby5.2%(CNY19/t)in2014YTDduetoslower-than-expecteddemandgrowth.Asthemarketisheadedintotopeakseasonwithboomingdemand,webelievecementASPwillbottominthenearterm.SouthChinaandYangziDelta(Jiangsu,ShanghaiandZhejiangprovinces)havebeentheworstperformersintermsofcementASPin2014YTD,decliningby11.3%(CNY46/t)and8.7%(CNY37/t),respectively.
MixedresultsinSouth,NorthandNorthwestChina.
SouthChinarecordedamarginalASPincreaseof0.5%w-wason28March,mainlyattributableto3.3%and5.7%ASPincreaseinHenanandHubeiprovinces,respectively,partiallyoffsetbya5.6%ASPdropintheGuangxiprovince.ASPinInnerMongoliaplummetedby19%orCNY60w-wtoCNY250/t,makingtheprovincetheworstperformeroverthepastweek,mainlybecausecementplayershavereducedtheASPtogainmoremarketshareamidtherecentdemandrecovery.Shaanxi,beingthebestperformer,sawa6.5%w-wincreaseincementASPtoCNY330/t.Asamodestrecoveryincementdemandisontheway,weexpectcementproducerstoseeaturnaroundinthesupply-demanddynamicsinthenearterm.
Short-termASPupsidepotentialtobecappedbyhighinventorylevels.
AccordingtoDC,cementinventoryinChinaonanaverageandinEastChinadecreasedmoderatelyto70%and67%,respectively,asintheweekended28March,showingsomesignsofdestocking.Despitethemarketenteringthepeakseason,wethinktheseasonalpickupinconstructiondemandinChinamaynotbestrongenoughtosupportcementASPduetohighde-stockingpressure.
FY14F:Wearelessoptimisticvs.consensus;BuyConch,ReduceCNBM.
WearecautiousonthecementsectorinFY14Fas:1)weforecastthatChina’scementdemandgrowthwillsurprisethemarketonthedownside(weestimatea5%y-ygrowth,vs.consensusat6-8%y-y);2)weexpectnewlyadded-incapacitytobehigherthanmarketexpectation(weestimatea4%y-ygrowth,vs.consensusat3%y-y);and3)wethinktheabolishmentof#32.5productwillbenegativeformajorplayers.WehaveaBuyratingonAnhuiConchandaReduceratingonCNBM.WemaintainourNeutralratingonCRCementandConchVenture.