Three highs in cement industry? Leading premium has not been fully explored

category:Finance
 Three highs in cement industry? Leading premium has not been fully explored


According to the data released by the national development and Reform Commission on January 2, from January to November 2019, the cement output of Enterprises above Designated Size nationwide reached 2.13 billion tons, up 6.1% year on year.

As a product with production sales ratio close to 100%, the growth of cement industry output means the expansion of industry demand.

The growth rate of cement market demand in 2019 has reached a new high in nearly five years, which is much higher than the market expectation. Talking about the characteristics of the cement industry in the past year, Chen Bolin, deputy director of information center of China Cement Association and executive president of digital cement network, told securities times u00b7 e company. As a market-oriented commodity, the supply-demand relationship of cement plays a decisive role in the price. The product characteristics of cement determine that the storage time is only 7-10 days, so the industry will not have a lot of inventory. The production is basically to maintain a stable state, an important factor that can stimulate the price growth, or the demand exceeds the expected performance.

He said that due to the weather in early 2019, some regions have suppressed the demand for the whole year to the fourth quarter. In addition, some places or due to the consideration of ensuring GDP growth, put part of the demand in 2020 ahead of the completion in the fourth quarter of 2019, so there is a concentrated outbreak of cement demand in the fourth quarter of 2019, and there is a corresponding small peak in price. At present, the average price of cement and the prices of some provinces with large demand are still relatively high.

Driven by the strong demand, the performance of cement industry in 2019 is expected to reach a new record.

According to Zhuo Chuangs analysis data, the industry wide profit of 154.6 billion yuan in 2018 is not the end point. In 2019, the profit of Chinas cement industry will reach a new high, which is expected to exceed 180 billion yuan in the whole year. In 2019, the cement demand increased by more than 5% year on year, while the peak of new capacity release at the supply side has not yet arrived, and the effective capacity has declined. In December 2019, the national average price of P.O42.5 bulk cement exceeded 490 yuan / ton, standing at an unprecedented high, 1.4% higher than the highest price in 2018.

In 2019, there is no problem that the profit level of the whole cement industry will reach a record high, and the net profit of the industry will reach about 180 billion yuan. Although the specific data will not be published until after the Spring Festival, the industry has been able to determine the magnitude of this profit. Chen said that under the overall high price in 2019, the industrys profitability is undoubtedly the best in history. However, the obvious regional differences in the cement industry are still persistent, and some enterprises in Northeast and other regions may still have losses.

The high prosperity of cement industry in 2019 can be seen from the three quarterly reports disclosed by relevant listed companies. In the first three quarters of 2019, only one of the 21 listed companies in wind CITICs first-class cement industry had a performance loss. Among them, conch cement, with the best profit situation, has achieved a net profit of 23.816 billion yuan, up 14.96% year on year. In addition, the net profit of six listed companies including Huaxin Cement, Jidong Cement and Shangfeng cement in the first three quarters has exceeded 1 billion yuan.

Low season not low, high price can continue

Although the Spring Festival is approaching and the cement industry has stepped into the off-season, the high price still continues.

For the cement industry, it is very rare that stable demand and high price can be maintained in the early spring festival.

According to Hou Linlin, at present, the arrival price of P.O42.5 bulk cement in Shanghai is more than 500 yuan / ton, while that in Fuzhou is nearly 600 yuan / ton, and that in Hangzhou is 620 yuan / ton, which is much higher than the market expectation.

The cement price of not light in the off-season does not show any sign of reduction at present. According to reports, in Hefei, Anhui Province, due to the consolidation of Chaohu scenic area, there are four production lines shut down, and the normal production of cement enterprises are currently in the state of limited delivery. In addition, due to the energy conservation and emission reduction plan in December 2019 in Zhejiang, many local kilns and mills have been shut down for 10-15 days, and the current local cement inventory is also at a low level.

Can the high prosperity of the industry continue?

After breaking through the industrys profit highs in 2018 and 2019, is the high prosperity of cement likely to continue?

Looking back on the development of cement industry in recent years, according to the statistics of Zhuo Chuang data, Chinas cement market shows a V trend in 2015-2019, with the lowest national average price of P.O42.5 bulk falling to 240 yuan / ton, the highest rising to 483 yuan / ton, and the highest price fluctuation of 101%. The promotion of industry staggered production reduces the pressure of cement supply, weakens the influence of supply and demand on the price in the cement market, and constitutes the main reason for the rise of cement price in recent years.

In 2015-2019, affected by the supply side reform and environmental protection, Chinas clinker production capacity growth rate fell year by year. The clinker and cement production was affected by environmental protection, peak staggering and demand and other factors, which led to the trend of first restraining and then increasing. In terms of capacity, from 2015 to 2019, the annual growth rate of clinker capacity dropped from 2.2% to - 0.2% year by year.

In 2017, the policy of off-site capacity replacement was introduced, and some cement enterprise groups actively embarked on replacement projects. By 2019, such projects will be put into production in succession, but most of them are reduction replacement. Therefore, the clinker capacity in 2019 will slightly drop by 0.2% to 1.751 billion tons. However, in 2019, the cement production capacity will reach 4.22 billion tons. The cement production capacity and clinker production capacity are seriously mismatched. The cement production capacity is about 1.4 billion tons. In terms of production, the cement production in 2015 decreased by 4.95% year-on-year, and turned into positive growth from 2016 to 2019, with the growth rate between 2.49% and 5%. Since 2016, the cement industry has carried out more standardized peak shifting production, and the output has achieved remarkable results in 2016-2018. However, the shortage of supply in peak season in some areas such as East China has also led to a large increase in clinker import. With the implementation of differential peak staggering scheme, clinker output recoverability will increase from 2019.

Hou Linlin believes that there is little room for domestic cement prices to fall around the Spring Festival. 2020 is the end of the 13th five year plan. Many projects need to be built, so the downstream demand of cement is guaranteed. At the same time, in terms of supply, the 13th five year plan for energy conservation and emission reduction will also face an end in 2020, and the supply of cement industry in the whole year may also be expected to continue to tighten.

Chen also said that in 2020, the cement industry demand will remain stable as a whole, and there should be no decline. From the perspective of the contradiction between supply and demand, the cement market in 2020 should still be in a tight balance. However, he said that although from the perspective of supply and demand, the high prosperity of the cement industry in 2020 can continue, from the perspective of stable development of enterprises, he called on cement enterprises to ensure the construction of key projects and maintain reasonable profit space. If the profit is too much higher than the industry average profit, it is easy to form a contradiction, which is not conducive to the overall development of the industry.

According to the analysis of CITIC Securities Research Report, on January 1, 2020, the central bank decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage points on January 6. This reduction in reserve plus the replacement of existing loans with anchor LPR is expected to bring about a loose margin of capital and reduce financing costs in the infrastructure industry. From the perspective of order, performance, cash flow and debt ratio, the fundamentals of the infrastructure industry are all in the improvement channel, maintaining the judgment that the infrastructure industry will grow steadily by 8% - 9% in 2020.

Marginal easing at the capital end will provide better support for demand. With strong control at the supply end, the profitability of the cement industry is expected to remain stable in 2020, and the regional differentiation is expected to increase. Considering that the impact of new supply is limited (the impact of new production capacity in 2020 is expected to be only 1.1%), the environmental protection and peak shifting production efforts will not be reduced, and the coordination and communication in the industry will be strengthened, the cement enterprises still have strong control over the supply, the overall cement price is expected to remain high in 2020, the overall sales volume will increase slightly, and the overall profit of the industry will increase slightly. Guoxin Securities Research Report also said that in 2020, the demand side of the cement industry has support, and the supply impact is limited. The gap between supply and demand is expected to continue to maintain a slight positive gap in demand. It is expected that the industry price will maintain high range shock operation throughout the year, and stable is still the main keynote of the industry operation. If the trend of stable industry continues, it is expected that the state of high dividend of relevant leading enterprises will be maintained. With the macro background of long-term downward interest rate and gradual opening of capital market to introduce overseas cheaper funds, the allocation value of high dividend enterprises will be highlighted. In addition, the valuation of leading enterprises in the cement sector is still at a low level, leading premium has not been fully explored, and there is a large room for improvement in the future. Source: responsible editor of Securities Times: Yang bin_nf4368

Marginal easing at the capital end will provide better support for demand. With strong control at the supply end, the profitability of the cement industry is expected to remain stable in 2020, and the regional differentiation is expected to increase. Considering that the impact of new supply is limited (the impact of new production capacity in 2020 is expected to be only 1.1%), the environmental protection and peak shifting production efforts will not be reduced, and the coordination and communication in the industry will be strengthened, the cement enterprises still have strong control over the supply, the overall cement price is expected to remain high in 2020, the overall sales volume will increase slightly, and the overall profit of the industry will increase slightly.

Guoxin Securities Research Report also said that in 2020, the demand side of the cement industry has support, and the supply impact is limited. The gap between supply and demand is expected to continue to maintain a slight positive gap in demand. It is expected that the industry price will maintain high range shock operation throughout the year, and stable is still the main keynote of the industry operation. If the trend of stable industry continues, it is expected that the state of high dividend of relevant leading enterprises will be maintained. With the macro background of long-term downward interest rate and gradual opening of capital market to introduce overseas cheaper funds, the allocation value of high dividend enterprises will be highlighted. In addition, the valuation of leading enterprises in the cement sector is still at a low level, leading premium has not been fully explored, and there is a large room for improvement in the future.