Impressive first-half profit growth at Anhui Conch Cement, the mainland’s  largest cement maker, is unlikely to continue for the rest of the year as  the industry braces for waning demand and falling sale prices. Analysts said  the sector was under siege on almost all fronts, with the country’s  intensified austerity measures and a power and coal supply crunch taking  heavy tolls on demand and supply of cement.

Stringent cost controls helped lift the company’s net profit more than  threefold to 794.26 million yuan in the first six months from 223.72 million yuan a year earlier.

Anhui Conch said cement prices were sinking in the second quarter from the  first quarter while demand would be stifled in the second half because of  the macroeconomic measures.

"I’m pessimistic about the second-half outlook of the sector," said Geoffrey  Cheng, a director of equity research at Daiwa Institute of Research Hong Kong. "Unless the central government relaxes its economic policies and the power supply problem is resolved, the cement industry is unlikely to rise
from its doldrums."

Deutsche Bank analyst James Clarke said infrastructure projects had stopped  in Anhui Conch’s core markets of Jiangsu, Zhejiang and Shanghai, due to the government’s grip on credit for developers.

"We learned from our trip last week to China that no loans have been issued  to developers in Shanghai since May 1 and only very few of the biggest  developers in Hangzhou have managed to arrange loans," Mr Clarke said.

Electricity shortages in the core markets were so chronic that they forced Anhui Conch to shut one production line for 15 days recently, he added. The markets generated about 73 per cent of the company’s 3.81 billion yuan sales in the first half.

Anhui Conch said its average cement price was 9.7 per cent lower in the second quarter, compared with the first quarter, a deliberate reduction to fend off fierce competition and oversupply. Despite the challenges, Anhui Conch predicted "substantial year-on-year growth" in its nine-month results.

 

 

Published under Cement News