China cement makers face profit crunch

China cement makers face profit crunch
Published: 28 July 2004

Problems with coal and electricity supplies have prompted some analysts to downgrade the earnings prospects of mainland cement manufacturers.  Cement makers such as Anhui Conch Cement, China Resources Cement Holdings, Chia Hsin Cement Greater China Holding and Shui On Construction and Materials are being challenged by soaring fuel costs, according to the analysts.

BNP Paribas Peregrine has pruned its profit forecast for Anhui Conch, the country’s largest cement maker, by 14 per cent to 1.21 billion yuan next year and by 1 per cent to 1.13 billion yuan this year.  BNP also downgraded its recommendation on Anhui Conch to "market perform" from "outperform", lowering its target price to $9.70 from $17.10. The stock closed yesterday at $8.05, 0.63 per cent higher.

An analyst at a European brokerage said he was pessimistic about the earnings prospects for Shui On’s cement operation, even though this year’s profit would be boosted by property sales.  "Growth in its China cement operations has been hit by the slowdown in infrastructure investment and by a price war by smaller players in addition to rising energy costs," he said.

Chia Hsin faces a bigger problem - electricity shortages.  Chairman Robert Wan said that because the company’s production base was in power-hungry Jiangsu, it was planning renewable energy facilities to mitigate long-term electricity supply risks. In the nearer term it was shifting some production to off-peak hours.