Fitch: China's cement demand to rise 4%-10%, oversupply on hold
2012-01-06 10:07:59
Fitch Ratings expects China's cement sector to see slightly lower average selling prices, as supply continues to outstrip demand. Pressure is likely to vary by region, subject to supplier discipline.

Fitch notes that supplier discipline in eastern China during Q410-Q211 helped stabilise prices. The agency expects other regions to follow this strategy in 2012, but its impact may be muted in the highly fragmented south-western provinces.

Fitch forecasts that demand for cement in China will grow between 4%-10% y-o-y to 2.15-2.3 billion tonnes in 2012, driven by fixed asset investment requirement to achieve China's 2012 GDP growth target of no less than 7%. Total cement capacity will be approximately 2.6 billion tonnes by end-2012, taking into account new capacity and retired obsolete vertical kiln facilities.

With slightly higher electricity tariffs in 2012, Fitch expects no significant increase in overall cement production costs. Another key input, thermal coal, is not expected to rise significantly in 2012 given the regulatory price cap of CNY800/tonne for 2012, compared with the nationwide average price of CNY809/tonne.

Given the high capex needed for ongoing capacity expansion, major operators in the sector would continue to experience negative free cash flow. (t)







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