Fitch revises China Shanshui Cement Outlook

Fitch Ratings has revised China Shanshui Cement’s Outlook to Positive from Stable. The Outlook reflects an “improved competitive landscape in Shandong, Shanshui’s core market and the company’s reduced capex plans,” Fitch said in a statement.

Discipline to stablise selling prices by adjusting production levels by key Chinese cement industry improved in 2011, especially in regional markets with strong concentration like the Shandong Province, Fitch notes. The top two cement producers in this province had over 50 per cent share of cement and clinker sales, of which Shanshui had a 29.5 per cent in 2011.

Fewer acquisition opportunities and the government's tight control in the building of new cement plants have contributed to Shanshui's reduced capex plans. Improved industry profitability has also resulted in smaller cement producers becoming less vulnerable to being acquired and/or prone to heftier valuation.

Fitch may consider upgrading the ratings of Shanshui if the company can maintain its strong performance in 2012. This includes a consolidated gross profit above CNY85/ton; net debt/EBITDA below 2.0x; and capex remaining below CNY4bn. Shanshui's Outlook may be revised to Stable if the company fails to achieve the above in 2012.