After Several Rounds Of Downward Adjustment, Cement Prices In Some Areas Are Expected To Stabilize And Rebound In The First Ten Days Of August

It has been a high boom for nearly five years. After the cement price reached its peak in May this year, it entered a continuous decline channel. The national cement price index (cempi) closed at 139.38 points as of July 23, according to China cement.com. The index continued to fall after reaching 159.34 points in May. The decline continued to enlarge, exceeding the psychological expectations of many people in the industry.

Along with it, the cement factory price in many areas of the country has been reduced for several rounds. Jiang Yuanlin, a senior cement analyst at Centennial construction network of Shanghai Iron and Steel Union, told reporters in the 21st century economic report that the off-season of this year is about a month earlier than that in previous years. After four or five rounds of price adjustment in some regions, the cumulative decline is close to 200 yuan / ton.

Wei Yu, senior analyst of cement big data Research Institute of China cement network, said that since the late March 2021, the continuous improvement of downstream demand has brought a wave of booming cement market, reaching a year high of 483.72 yuan / ton in mid May. However, affected by the adverse factors such as Meiyu, high school entrance examination, busy farming and tight market funds, the downstream demand is weak and the enterprise inventory is rising, which leads to the continuous decline of cement price.

"At present, the cement price in some areas has fallen to the cost line, and the price has bottomed out, and the space for downward adjustment is limited." Wei Yu believes that in the short term, with the end of the rainy season, the demand in the middle and lower reaches of the Yangtze River is expected to take the lead in the seasonal recovery, and the cement prices in the first and middle of August may come to a stop falling recovery.

Cement price bottoms in some areas

In addition to the impact of the original off-season decline and high-temperature weather, Wei Yu said that the new cement clinker production lines were ignited one after another, and the superposition of production capacity also pushed down the cement price.

Relevant data show that in 2020, 26 cement clinker production lines will be ignited in China, with a total actual production capacity of about 38.16 million tons, which is the highest production capacity of new production lines in a single year in recent five years. Taking Guangxi as an example, its new production capacity is 3.875 million tons, and at least two new clinker lines have been put into operation in the first half of this year. In the middle and late May this year, the cement price in Guangxi has been on a downward trend, which is lower than that in the same period last year.

It is worth noting that recently, the central supervision group of ecological and environmental protection named Guangxi's "two high" projects are not well controlled, and the production capacity of cement clinker and other high energy consuming industries continues to expand.

In addition, the rising cost of raw materials also makes some cement enterprises at the edge of loss. Jiang Yuanlin introduced that processing enterprises buy clinker and process it into cement and then sell it. The price of clinker is closely related to the price of coal. Due to the collective rise in global commodity prices this year, the rise in coal prices is much higher than that in cement prices.

According to the data of cement big data research institute, in the first half of 2021, the average price of cement is 461.3 yuan / ton, which is basically the same as 461.5 yuan / ton in the same period of 2020, but the average price of steam coal is 816.5 yuan / ton, which is 50.4% higher than 542.8 yuan / ton in the same period of last year. Jiang Yuanlin said that if the coal price increase is converted into the cost of cement, the cement price will increase by 50 yuan / ton. At present, the cement price of some enterprises in East China is 20-30 yuan per ton lower than the cost price, so they have to stop production or sell them separately.

The reporter noted that the leading cement enterprises, such as Wanqing (000789) and Jidong Cement (000401), also said in their interaction with investors that the coal price would have a certain impact on the production cost of the company's cement and clinker, and the enterprise would reduce the impact of coal price rise on the company by reducing energy consumption per unit product and increasing market share.

In late July, due to the influence of high temperature and local rain weather, the construction conditions are poor, and the national cement demand continues to be weak. According to the data, the average cement price of key cities in China was 418 yuan / ton last week, with a weekly decrease of 3.9 yuan / ton and a year-on-year decrease of 8.5 yuan / ton. However, it is worth noting that although the average price of domestic cement is still declining slightly on a month on month basis, the decline rate is narrowed and the price reduction areas are obviously reduced.

"At present, Guangxi, Guizhou, Zhejiang and other places have seen a correction, and the cement prices in some areas have tried to rise back, with a rebound rate of about 20-30 yuan / ton." Wei Yu said that downstream demand continued to recover in some parts of Zhejiang Province. In addition to power rationing in some regions and rapid inventory digestion, cement prices have been driven up. The cement price in Anhui is stable, the weather is fine, the local demand continues to recover, and the enterprise delivery can reach the balance of production and sales. After the continuous sharp decline in June and July in East China, Central South China and southwest China, the cement price has fallen to a relatively low level, and the downward space has reached the bottom line.

It is expected to stabilize and rebound in early August

A number of cement industry observers interviewed by the reporter agreed that, it is expected that, with the gradual recovery of downstream demand at the end of July and the beginning of August, the cement price will stabilize and some regions will usher in a rebound.

On July 20, the Ministry of industry and information technology issued the revised implementation measures for capacity replacement in cement glass industry (hereinafter referred to as the implementation measures), further tightening the replacement ratio and trans provincial replacement index, and required to be implemented from August 1, 2021.

Previously, cement clinker construction projects located in environmentally sensitive areas specified by the state had to shut down and withdraw 1.5 tons of production capacity for every 1 ton of construction capacity, and 1.25 tons of production capacity for new projects located in other non environmentally sensitive areas. According to the implementation measures to be implemented, the replacement ratio of cement clinker production capacity is increased from 1.5:1 and 1.25:1 to 2:1 and 1.5:1 respectively.

Bao Rongfu, an analyst with Tianfeng securities, said that the implementation of the implementation measures is conducive to optimizing the supply pattern of the cement industry and reducing excess capacity. At present, some provinces have clearly proposed to prohibit new production capacity, and the supply side of the cement industry is expected to usher in substantial improvement in the future.

"The Yangtze River Delta and other core markets will take the lead in callback, playing the role of a weathervane." Jiang Yuanlin believes that the supply and demand in the peak season of the Yangtze River Delta is still expected to show a relatively tense situation, supporting the high-level fluctuation of the prosperity of the cement industry.

In addition, Wei Yu believes that with the launch of large projects in the second half of the year, the issuing speed of special bonds will be further accelerated, which will have a strong support for the cement price. It is expected that the cement market in the second half of the year is still worth looking forward to.

In the first half of this year, the total new amount of government special bonds was 1.0 trillion, which is still 2.65 trillion to be issued, which is far from the annual target of 3.65 trillion. Wei Yu said that it is expected that the approval of special bonds will be accelerated in the second half of the year, and the long-term funds released by the RRR reduction will be about 1 trillion yuan, which may help to improve the gold level of low-end capital, and the rebound of cement price in peak season can still be expected.

However, Wei Yu is worried about the impact of the new cement clinker production line on the market this year. Cement big data research institute predicts that 8 cement clinker production lines will be put into operation in 2021, and 29 production lines are expected to be put into operation, with a total capacity of 48.79 million tons.

"For regions with serious overcapacity, if the new policy of capacity replacement fails to achieve the expected effect, once the capacity with low competitiveness is activated and enters the market, it will inevitably affect the resolution of overcapacity." Wei Yu said that a new round of competition may start, and the downward cycle of the industry may come.

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