Rising Cost And Tight Supply And Demand Push Up Cement Price May Be Stable

Cement prices continue to rise. As of May 12, the cement index (884998. WI) rose by 4.39% in the past five days, according to wind data.

This upward trend has been sustained since April this year, among which, the cement price in key cities has been higher than the same period level in recent five years“ The rise in cement prices is closely related to the insufficient domestic cement inventory and the promotion of cement demand by infrastructure projects and real estate projects On May 12, Wei Yu, senior analyst of China cement.com, said in an interview with the 21st century economic reporter that, in his opinion, the cost promotion is still the main reason, and after May, the cement price may enter a stable period. According to the data of my iron and steel network, the cement price index on May 12 decreased by 0.32% compared with the previous day.

Tight supply and demand in the middle and lower reaches of the Yangtze River

Last week, the national cement market price continued to rise, with a month on month increase of 0.3%. The national average cement price was 463.2 yuan / ton, with a weekly increase of 2.5 yuan / ton. From the regional perspective, the price increases are mainly concentrated in Shanghai, Jiangsu, Zhejiang, Hainan, Hubei and other places, the range is between 20 and 30 yuan / ton, while Chongqing and Yunnan are falling, with the same range of 20-30 yuan / ton.

Since April this year, the national cement price has been significantly higher than the same period since 2018. Although some parts of North China are also rising, the price rising areas are concentrated in East China, central China and other places. Shi Lin, an analyst of Hua'an securities, found that driven by the demand in East China, the supply of eastern coastal and Yangtze River Valley is generally tight, and the clinker price has also risen.

Wei Yu said, "at present, the price of cement is a normal rise in peak season. Superimposed with the rising factors of raw material price this year, in addition to the relationship between supply and demand, it is more cost driven." Guosheng securities analysts Huang Shitao, Fang Dalei and Shi Fengyuan pointed out that in terms of cost, coal and other raw and fuel prices are high. Although cement prices in most regions are not affected much, some low-cost provinces in the north are facing cost pressure. As an upstream enterprise of cement enterprises, coal accounts for a large proportion in cement production. Wei Yu added, "the upstream raw materials are mainly steam coal, and the price of steam coal has risen since April last year, which is bound to push the cost of cement production higher and higher." The price of domestic steam coal rose 1.1% to 637 yuan per ton last week, according to the Ministry of Commerce.

The rising cost of raw materials is the main reason for the market to pay attention to the recent rise of cement price. However, due to many factors, it is difficult to judge when the price of raw materials will go back. The international and domestic raw material markets have rebounded at the bottom, which can be traced back to early April 2020. When analyzing the financial report of "cyclical stocks" in the first quarter of this year, the 21st Century Capital Research Institute found that the Wenhua commodity index, which tracks the prices of a package of commodities, has risen by nearly 40% since April last year, creating favorable conditions for the profit margin improvement of cyclical industry products. And this phenomenon also brings fluctuations in the secondary market. As of the end of May 12, wind data showed that the cement index rose about 4.09% in the past five trading days.

The cement price rise superimposes the low profit base in 2020, and the performance of cement industry in the first quarter of this year is relatively bright. According to wind data, in the first quarter of 2021, the cement industry realized an operating revenue of 83.6 billion yuan, a year-on-year increase of 56%, and a net profit attributable to the parent company of 7.8 billion yuan, with an increase of 33%, and the growth rate was 67% higher than that of the same period. Among them, the cement sector with the highest net profit growth rate was 393.6% of Tianshan shares. Qilianshan, Bowen technology, Ningxia Jianshu and Huaxin Cement also achieved 273.1%, 208.9%, 110.3% and 107.3% of net profit growth respectively. In the first quarter of this year, the operating revenue of Hailuo cement, a leading cement enterprise, was 34.44 billion yuan, up 48.38% year on year, and the net profit attributable to it was 5.809 billion yuan, up 18.24% year on year. However, compared with the performance of the previous year, the net profit attributable to the company in the first quarter of 2019 will reach 6.081 billion yuan, which is still lower than that level in 2021.

What is the demand for infrastructure and real estate?

"It's in the peak season right now." Wei Yu judged that the increase in cement demand and insufficient supply is an important reason for the price rise. In terms of regions, Wei Yu pointed out that "in the past, the Yangtze River Delta and the Pearl River Delta had high demand, and the capacity utilization rate was high, and the peak season could reach the full production level, which in general will promote the cement price higher than other regions." Shi Lin, an analyst at Hua'an securities, believes that in terms of demand, the Yangtze River Delta and the Pearl River Delta are the core areas of cement demand, infrastructure and real estate demand are significantly better than other provinces, and have an obvious driving effect on surrounding provinces.

Specifically, on the supply side, the data of digital cement network and Tianfeng Securities Research Institute show that the current domestic overall cement inventory level is lower than the same period level since 10 years. According to the calculation, the cement inventory in Pan Beijing Tianjin Hebei region is 49.2%, with a weekly increase of 0.4%; the cement inventory in the middle and lower reaches of the Yangtze River Basin is 39.9%, with a decrease of 2.3%; the inventory of the Yangtze River Basin is 42.6%, with a decrease of 0.6%; and the inventory of Guangdong and Guangxi regions is 49.8%, with a week to month increase of 49.8%. Wei Yu pointed out that "cement is not easy to store, which belongs to the product that is produced and sold immediately. Cement plants generally do not produce a lot of inventory, so it is difficult to cope with the market by means of inventory in advance. Therefore, the low inventory of cement is a normal phenomenon in the industry. At present, the industry is in the peak season, and the current inventory has not deviated from the normal range according to the previous data. "

On the demand side, Wei Yu further analyzed the downstream of the cement industry chain and said, "infrastructure projects and real estate projects jointly promote the cement demand." As far as infrastructure projects are concerned, it is reported that in the first quarter of 2021, the national investment in fixed transportation assets reached 579.2 billion yuan, up 52.8% year-on-year and 18.5% higher than the same period in 2019. Among them, 459.7 billion yuan was invested in roads and waterways, with a year-on-year increase of 60.1% and a year-on-year increase of 23.5% over the same period of 2019, and 25.5% of the annual investment target of 1.8 trillion yuan has been completed. The time sequence progress is the best in recent five years. In addition, Shi Lin, an analyst at Hua'an securities, also pointed out that according to the investment report cards recently disclosed by local governments, investment in many places exceeded expectations in the first quarter, construction of key projects was carried out at full speed, and mobilization meetings for major projects were held in many places recently to plan for expanding effective investment.

At the same time, investment in real estate is picking up. According to Liu Kan's calculation of Minsheng securities, adding to the low base effect caused by last year's epidemic, from February to March 2021, the total amount of real estate investment completed exceeded 20% year-on-year. After calculating the recent domestic land supply situation, Chen Li, an analyst of Zhongtai securities, pointed out that under the background of this round of centralized land supply, the land market is hot. From the situation of cities that have completed the first round of centralized land supply, due to the good sales of real estate market and the high willingness of developers to replenish inventory, the land market in core cities is fierce. Guosheng Securities pointed out that with the background of low inventory, combined with the possibility of demand exceeding expectations brought by subsequent real estate rush and supply side constraints, the boom in this round of peak season is expected to exceed expectations.

On the premise of optimistic expectations for the cement industry in peak season this year, Wei Yu, after referring to the forecasts and analysis of institutions, believes that "overall, this year will still maintain the balance of supply and demand, and there will be no significant fluctuations. The demand side is generally relatively stable. The newly started area of real estate is expected to decline this year. Although there will be a certain rush period, it is relatively flat with the overall level of the previous two years, and the possibility of exceeding the expectation is small. After entering may, the cement price will enter a relatively stable stage. From the supply side, the overall capacity is also relatively stable, at the level of the platform period. " Wind data shows that from 2015 to 2020, China's total demand for cement has entered a high platform period, with an annual demand of 2.2 billion tons to 2.4 billion tons. Yang Kan, an analyst at Minsheng securities, stressed that in the long run, cement demand has entered the platform period, and the future demand growth rate is expected to be below 5%.

It is worth noting that the high price driven by the superposition of demand peak season and insufficient supply and demand will inevitably lead to the cost increase of downstream construction enterprises. On the one hand, it can force downstream enterprises to strengthen the management of raw materials and understand the overall market situation of the construction area, including good communication with upstream suppliers and making budget in this way. But on the other hand, "for construction enterprises, the current more worried about the price of cement skyrocketing." Wei added.

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