China cement weekly ASP rises further

China’s cement ASP recorded a 0.8% w-w increase to CNY334/t for Grade42.5 product in the week ended 9 August 2013, according to DigitalCement (DC). East China was the best performer in terms of cement ASPwith a 2.0% w-w increase to CNY334/t. Following recent ASP hikes, webelieve that the East China cement ASP has bottomed out. As China’scement market is heading into the peak season with a likely demand boomin late August, we expect the cement ASP to further rise by 5-10%(CNY20-30/t) in 4Q13F especially for East China.

Price changes: East, South and Northeast China up

Within the past month, clinker ASPs in East China have increased byCNY50-60/t due to the low inventory level stemming from power rationingand price coordination in Zhejiang and Jiangsu provinces. As a result, weexpect the cement ASP in East China to follow clinker prices by rising 10-15% (CNY30-40/t) in 4Q13F. The cement ASPs in Guangdong (SouthChina) and Heilongjiang (Northeast China) also increased by CNY20/teach in the past week due to rising demand. Notably, the cement ASP inAnhui province (East China) shot up by CNY30/t (+11%) to CNY300/t lastweek due to rising demand.

Inventory level: Further drop in East and South China

According to DC, the cement inventory level for China decreased by 0.9ppto 67% over the week ended 9 August 2013. This was mainly caused by a3.3pp drop in the inventory level of East China. We attribute this inventorydrop to supply constraints, including effective price coordination andproduction shutdown by power rationing, besides demand pick-up. Theinventory level in South China also decreased by 0.7pp to 69% triggeredby rising demand as the rainy season has ended. We expect the inventorylevel to remain flattish in the coming four-six weeks.

Action: Buy Anhui Conch

We believe that Anhui Conch is still attractive at the current level, given: 1)the East China cement ASP is set to further go up; 2) valuations areattractive; and 3) we forecast positive y-y earnings growth for 2013F.

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