China Cement Weekly: Prices Were Stable in Late November

Cement pricesremained stablelast week.4WMAalso turned flat.In late November, overall cement prices were stable, with some price fluctuation in individual regions. Cement prices decreased RMB20-40/ton in individual area of Hunan due to unfavourablerainy weather, while cement prices in Northern Anhui edged up RMB10/ton to catch up other regions. Seasonal cement price increased only 3.1% so far in 4Q14 vs. 9.3%same time last year. Slowdown in FAI growth and tightened liquidity continued to overhangdemand growth.We expect cement suppliers tofocus on stabilizing price via supply disciplinethis month.

    Increasing inventory.Nationwide inventory level edged up 0.7ppt w/w to 70.7%, with 5 consecutiveweeks of increases. 4WMA was also up 0.6ppt. Current nationwide inventory level is7.9pptshigher than last year, whichreflectsthe weaker demand in peak season 4Q14 compared to last year. Eastern China was up 1.6ppt w/w to 68.5%, and major cement suppliers in theYangtze River Delta region plan to halt production to stabilise prices amid piling inventories.

    Coal prices remainedflat. Qinghuangdao thermal coal (Q5500) prices remainedat RMB515/ton last week. Coal prices have increased 6.2% so far in 4Q14 mainly on seasonality, while they are still 13.4% lower than same time last year.

    Our cement stock index increased6.8% last week vs. the HSI’s2.3% increase.The recent interest rate cut announced by PBOCwill be positive for construction works.Recently the NDRC has accelerated infrastructure projects approvals.35 projects with over RMB970bn investment have been approved sinceOctober.Thejoint development plan of the Beijing-Tianjin-Hebei Region is expected to be introduced in December. These detailed plans for the integration of theregion willsupport regional cement demand. BBMG (2009.HK, Buy, HK$7.00)would be the major beneficiary, given its property and cement businesses. For nationwide player, we still preferAnhui Conch (914.HK, Buy, HK$32.80) given its cost leadership, industrial low leverage, and favourable exposure to Eastern and Southern China, where supply/demand situation is relatively better than other regions.We remain buyers given its undemanding valuation, near its previous trough of 5X forward EV/EBITDA.