Cementweeklypricecontinueddownwardtrend
CementaverageASPinChinarecordeda0.3%w-wdeclinetoCNY325/tforGrade42.5productduringthelastweekasof8March2013,accordingtoDigitalCement(DC),duetoslower-than-expecteddemandgrowth.ThecementASPdropmainlyoccurredinEastChina(Fujianprovince),SouthChina(GuangxiandHunanprovinces)andNorthwestChina(Shaanxiprovince).Theinventorylevelisstillhoveringat72%asoflastweek,whichdoesnotbodewellforapotentialcementASPhike,inourview.
Shockingdivergence:cementASPdropfromlowerinfrastructureandpropertydemandgrowthvsupfromhigherruraldemand
WewitnessedanotabledivergenceincementASPperformanceduringthepastseveralweeks.ThecementASPforGrade42.5product,whichismainlyusedforinfrastructureandpropertyprojects,hasdecreasedalmost1%overthepastthreeweeks,causedbyslower-than-expecteddemandgrowthininfrastructureandpropertyprojects.However,thecementASPforGrade32.5product,whichismainlyusedforruralareas,hasincreasedby0.4%overthepastthreeweeks,asthedemandgrowthfromruralareasisbetter-than-expected.Thiscouldleadtofurthermarginshrinkagegivenlow-endproduct(Grade32.5)tendstohavelowermarginscomparedtothatofhigh-endproduct(Grade42.5).
Inventorylevel:stillhoversathighlevel,cappingpotentialASPhike
AccordingtoDC,thecementinventorylevelreached72%asoflastweek,whichisstillhigherthanthepast3-yearaveragelevelof60-65%.WethinktherelativehighinventoryleveldoesnotbodewellforpotentialcementASPappreciation.
Action:Remainbearish.ReduceonCRCementandAnhuiConch
Weforecastdemandwillsurprisethemarketonthedownsideandthenewlyadd-incapacitytosurprisethemarketontheupside.WethinkthecementASPwillremainflattishintheshorttermandstarttotrendupwardsinlateMarch.WeforecastaCNY30/tASPhike,whichismuchlowerthanthemarketsexpectationofCNY50-70/t.WeestimatethecementASPgainin2Q13Fshouldbelowerthanthatof4Q12.WeremainBearishonthesector.ReiterateReduceratingonCRCementandAnhuiConch.