ChinacementASPdownforthefourthconsecutiveweekinpeakseason
Fortheweekended9May,cementASPinChinafurtherdeclined,by0.14%w-wtoCNY353/t(grade42.5product),accordingtoDigitalCement(DC).TheYTDcementASPfallinChinahasaccumulatedto5.5%(CNY21/t);weattributethismainlytocementdemandbeinglowerthanmarketexpectation,especiallyduringthecurrentpeakseason.EastChinaandSouthChinahavebeentheworstperformersintermsofcementASPin2014YTD,declining11.2%(CNY46/t)and10.9%(CNY44/t),respectively.WeseeverylimitedupsidepotentialforcementASPsinthecurrentpeakseasonasdemandgrowthislowerthanmarketexpectation.
EastChinacementASPdroppedduetosluggishdemandgrowth
TheASPinEastChinaslid2.3%w-wason9Mayduetothe6.1%,5.1%and4.4%ASPdropinJiangxi,ZhejiangandFujianprovinces,respectively.SouthwestChinarecordedanASPincreaseof1.7%w-wason9Mayduetoa6.9%ASPincreasetoCNY385/tintheYunnanprovince.TheASPinSouthChinawasup0.9%w-wason9May,mainlyowingtoa4.5%ASPincreasetoCNY460/tintheHainanprovince.Asweforeseeamildrecoveryincementdemand,weexpectcementproducerstoseelimitedimprovementinthesupply-demanddynamicsinthenear-term.
InventoryinEastChinafurtherbuildsup
AccordingtoDC,theaveragecementinventoryinChinaandEastChinaedgedupto68%and66%,respectively,asoftheweekended9May,showingde-stockingpressure.Despitethemarketenteringthepeakseason,wethinktheseasonalpick-upinconstructiondemandinChinamaynotbestrongenoughtosupportahighercementASP,astheoverallcementmarketstillfacesheadwindsfromhighde-stockingpressure.
FY14F:Wearelessoptimisticvs.consensus;NeutralonAnhuiConch
WearecautiousontheChinacementsectorinFY14Fas:1)weforecastChina’scementdemandgrowthwilllikelysurprisethemarketonthedownside(weestimatea5%y-ygrowthvs.consensusat6-8%y-y);2)weexpectnewlyadded-incapacitytoexceedmarketexpectation(weestimatea4%y-ygrowth,vs.consensusat3%y-y),and;3)wethinktheabolishmentof#32.5productwillbenegativeformajorplayers.WehaveaReduceratingonCNBMandmaintainourNeutralratingsforAnhuiConch,CRCementandConchVenture.