On November 17, the reporter learned from Chen Bolin, CEO of Digital Cement Network, that the annual profit of the cement industry would be expected to be on par or slightly higher than last year's level of over 180 billion yuan. In the context of downstream rush period and supply control, Sichuan, Hunan, Guangxi and other places raised cement prices again on November 16.

Many agencies pointed out that the economy continued to recover and the construction rush period was coming. Cement companies are expected to run at a high level. The decline in inventories will drive up cement prices. The companies are expected to benefit. The cement sector may usher in a recovery.

Increase cement prices in many places

The price increase range this time is mostly between 20 yuan/ton and 30 yuan/ton, and some regions have already raised their prices at the beginning of the month.

For example, some leading companies in the Bazhong area of Sichuan Province notified to increase the price of various types of cement by 20 yuan/ton from November 16; most manufacturers in Pingxiang, Yichun and other places in Jiangxi Province notified to increase the price of various types of cement by 30 yuan/ton from the 16th; Some leading enterprises in Zhutan, Yiyang, Hengyang and other places in Hunan Province successively notified the increase of cement prices by 30 yuan/ton.

According to the monitoring of Digital Cement Network, from November 7 to November 13, the national average price of P.O42.5 bulk cement was 464.85 yuan/ton, up 0.41% from the previous week. Liaoning, Zhejiang, Sichuan, Heilongjiang and other places showed significant gains.

"In the fourth quarter, we have entered the rush period, the downstream market demand is strong, and cement prices have risen accordingly." Chen Bolin told reporters.

On the demand side, data released by the National Bureau of Statistics on November 16 showed that from January to October, investment in real estate development across the country increased by 6.3% year-on-year, and the growth rate was 0.7 percentage points higher than the previous three quarters. From January to October, infrastructure investment increased by 0.7% year-on-year, and the growth rate was 0.5 percentage points higher than the previous three quarters.

Institutional data showed that the national average cement inventory last week decreased by 1.9% compared with the previous week. Among the 80 cities monitored, 20 cities have reduced inventory, concentrated in Zhejiang, Fujian, Henan and other places. Cement companies in Jiangsu, Zhejiang, Anhui and other places delivered normally or sold more than they produced. In the Pearl River Delta and other places,the demand was strong and the inventory fell to low levels.

At the same time, many places have adopted control policies from the supply side. According to the "Notice on Printing and Distributing the Work Plan for the Seasonal Production Control of Key Industries in Henan Province in 2020", from November 15 to December 31, the differentiated production control would be implemented in 12 industries including cement.

Average price is still slightly lower than last year

Chen Bolin said: "Since the fourth quarter, many places have raised cement prices. Due to the overall price decline in the first three quarters, the current national average cement price is still slightly lower than last year."

According to the monitoring of Digital Cement Network, the national average price of P.O42.5 bulk cement in the first three quarters was 437 yuan/ton. Looking at the transition between low and peak season from the end of the third quarter to the beginning of the fourth quarter, the demand for cement continued to rebound. Meantime, driven by environmental constraints and other factors, prices continued to rise.

According to data from the National Bureau of Statistics, in the first three quarters, the national cement industry achieved sales revenue of 694.3 billion yuan, down 3.47% year-on-year, and realized profits of 129 billion yuan, down 1.74% year-on-year. Chen Bolin said that although revenue and profit had both fallen, the rate of decline had continued to narrow, and profits had been close to the level of the same period last year. "It is estimated that the annual profit of the cement industry is expected to be on par or slightly higher than last year's level of over 180 billion yuan."

Pacific Securities said that the North entered the construction rush period and prices would be expected to rise. The prosperity of the southern region remained high, and some regions in Jiangsu started the fifth round of price increases. At present, the inventory in East China is 40-50%, and the price in Jiangsu, Zhejiang and Shanghai exceeds that of the same period last year. In the fourth quarter, real estate and infrastructure investment is strong and demand is supported. As the fundamentals continue to catalyze, the cement sector that has been adjusted in the early stage is expected to usher in a recovery.

Tianfeng Securities believes that into late November, the possibility of price fluctuations in the cement market in the northern region is unlikely. Driven by the construction rush period in the southern region, it is expected that prices will continue to maintain a steady upward trend. There is a high probability that the economy will gradually recover next year, and cement will continue to be in a profit-increasing cycle. The current valuation of the cement sector is significantly lower than other cyclical assets, and there is room for recovery.

CITIC Securities predicts that cement prices will continue to run at a high level in 2021, and the industry's overall profitability will remain high and stable. Infrastructure demand will grow moderately, and the growth rate of real estate construction and installation investment will slow but remain stable. It is expected that cement production and sales in 2021 will increase by 5% year-on-year. In addition, the new supply is controllable. It is expected that during the "14th Five-Year Plan" period, the cement industry's supply-side reform measures and environmental protection supervision will not decrease. Staggered peak production and self-regulation of production will gradually become the normal means to solve the imbalance between regional supply and demand.