Guotou Securities: Cement price hikes in East China/North China/Central South in March, expected to benefit from increased infrastructure investment.

Guotou Securities released a research report stating that in recent times, cement prices have continued to rise in various regions such as East, Central, and North China. As of April 4th, the prices for bulk PO42.5 cement (including tax) in the whole country/East China/North China/Central and South China/Southwest China/Northwest China were 399 yuan/ton, 408 yuan/ton, 370 yuan/ton, 410 yuan/ton, 415 yuan/ton, and 388 yuan/ton, respectively. With the recovery of downstream cement demand and the implementation of staggered kiln stoppages, cement prices have seen some increases, with East China/North China/Central and South China leading the way. In addition, the Q1 raw material coal prices have seen a decrease both year-on-year and quarter-on-quarter, which has helped improve the profitability of cement companies. Looking ahead, with export pressure and the expectation of further infrastructure policy support, cement demand is expected to continue to recover. Multiple policies will continue to promote supply-side optimization, helping to improve the industry's supply and demand balance, creating a foundation for cement price increases and profitability. Key points of Guotou Securities' analysis are as follows: Increasing demand and staggered stoppages lead to low inventory levels and rising cement prices From the demand side, cement production in China reached 171 million tons in January and February, a decrease of 5.7% year-on-year, showing a narrower decline compared to the full year decrease of 9.5% in 2024. According to the findings of a survey of 274 cement clinker sample enterprises in China by Century Building Net, the average weekly operating rate of kilns in March was 40.1%, an increase of 12.5% compared to the previous month, while the average clinker inventory ratio was 53%, a decrease of 1.6% compared to the previous month. Since the beginning of the year, as the demand for cement gradually recovered, leading to increased shipments from enterprises, combined with the intensified staggered kiln stoppages in March, the pressure of enterprise inventory has reduced in the regions, leading to multiple price increases for cement. According to ifind, as of April 4th, the prices for bulk PO42.5 cement (including tax) in East China/Central and South China were 408 yuan/ton and 410 yuan/ton, with an increase of +4.21% and +6.45% respectively compared to the low point on February 21st. In the North China region, due to factors such as longer kiln stoppage times and low inventory levels, the mentality of enterprises to increase prices was stronger, with the price of PO42.5 cement (including tax) reaching 370 yuan/ton, an increase of +7.12% compared to the low point on February 21st. From the cost side, coal prices have been decreasing since Q4 of last year, with the average price of thermal coal in Q1 of 2025 at 699 yuan/ton (a decrease of 12 yuan/ton quarter-on-quarter and 20 yuan/ton year-on-year), further down to 690 yuan/ton in March 2025 (a decrease of 12 yuan/ton quarter-on-quarter). The combination of rising cement prices and falling coal prices has helped to improve the profitability of cement companies. Enhanced competitive mechanism among enterprises and profitability recovery through multiple price increases Since Q2 of 2024, there has been a shift in the competition strategy of leading cement enterprises, with a stronger profit-oriented focus. Enterprises have gradually restored their competitive mechanisms, and with the combination of staggered kiln stoppages and price increases, the net profit attributable to owners of parent companies has turned from negative to positive, with profitability gradually improving by quarters in 2024. The year-on-year growth rates of net profit attributable to owners of parent companies in the cement sector for Q1-Q4 of 2024 were -219%, -79%, -13%, and 85%, with respective sales gross profit margins of 13%, 18%, 20%, and 25%. According to the company's annual report released, the selling prices of cement clinker products of Anhui Conch Cement were 267 yuan/ton and 279 yuan/ton in the first half (H1) and second half (H2) of 2024, with gross profits per ton of 61 yuan/ton and 74 yuan/ton, respectively. For Huaxin Cement, the prices were 304 yuan/ton and 319 yuan/ton in H1 and H2 of 2024, with gross profits per ton of 63 yuan/ton and 82 yuan/ton, respectively. As for Tangshan Jidong Cement, the prices were around 241 yuan/ton and 246 yuan/ton in H1 and H2 of 2024, with gross profits per ton of 25 yuan/ton and 50 yuan/ton. Tianshan Material had prices of approximately 238 yuan/ton and 255 yuan/ton in H1 and H2 of 2024, with gross profits per ton of 21 yuan/ton and 54 yuan/ton, respectively. Infrastructure support expected to drive cement demand recovery in 2025, with multiple policies promoting supply-side optimization On April 2, 2025 (Eastern Time), Trump announced a 34% tariff increase on China, adding to the existing tariffs, which may put pressure on China's exports. With the focus on boosting domestic demand and stabilizing investment, it is expected that there will be further measures to enhance domestic infrastructure policies. Since the beginning of the year, the issuance of infrastructure funds and corporate bonds has been accelerating. By the end of March, local government special bond issuances had reached 1.50 trillion yuan, an increase of 51% year-on-year, while special re-financing bonds reached 1.34 trillion yuan (representing around 67% of the 2 trillion annual quota). The acceleration of infrastructure fund issuance, combined with the expectation of enhanced infrastructure policies, is expected to drive continued recovery of downstream cement demand. On the supply side, in the short term, staggered kiln stoppages for the heating season in some regions may extend until the end of April, with staggered stoppages for non-heating seasons about to begin, and many cement enterprises continuing to stagger production. In the medium to long term, policies promoting the clearing of cement capacity continue to be implemented, including unifying approved and actual production capacity, implementing dual controls on energy consumption, advancing ultra-low emission policies, and joining carbon trading policies. These measures effectively guide the accelerated exit of inefficient cement capacity in the industry, helping to alleviate the industry's supply and demand imbalances and boost cement prices and profitability. Risk warning: Policy implementation falling short of expectations, downstream demand falling short of expectations, staggered kiln stoppages falling short of expectations, and rising raw material prices.