The Zhitong Finance App learned that since May 20, some regional markets in East China, Central China, Northeast China, Southwest China and Northwest China announced an increase in cement prices by 20 yuan to 50 yuan/ton. In addition, the mandatory national standard GB175-2023 “General Silicate Cement” organized by the Ministry of Industry and Information Technology will be implemented on June 1, 2024. A number of industry insiders said that the implementation of the new national standard for cement will increase the clinker utilization rate and relieve the pressure of excessive cement clinker production capacity to a certain extent. At the same time, cement production costs will increase, and the industry is expected to accelerate survival of the fittest and promote the high-quality development of the cement industry.

According to our understanding, all provisions of the new national cement standard are mandatory provisions. This is the biggest difference from the old version, where most of the terms of use are recommended. The new national standard for cement puts forward specific requirements for improving cement strength, refining fineness requirements, detailed composition regulations, and regulating the types of mixed materials used to guarantee the quality and quality of cement.

According to estimates by the cement network, the production costs of most cement companies may increase by 10 yuan/ton to 30 yuan/ton as a result. In order to reduce costs, some small and medium-sized enterprises and independent grinding stations previously used more other mixed materials, and used clinker and gypsum relatively less. With the strict implementation of the new national standard and the stricter control of clinker by enterprises, it is expected that the cost increase for small and medium-sized enterprises will be even greater, which will help further consolidate the competitiveness of large enterprises and promote survival of the fittest in the industry.

In 2023, the cement industry experienced another trough year. According to data from the Digital Cement Network, the country's cement production was about 2,023 million tons, down 0.7% year on year, hitting a new low in nearly 13 years. However, with the operating conditions of the entire industry this year and the introduction of favorable policies one after another, cement prices have recovered to a certain extent.

From an industry perspective, cement prices have continued to rise recently. Digital Cement Network data shows that as of May 24, 2024, the average price of cement nationwide was 366 yuan/ton. As new standards for cement are about to be implemented, companies in most regions are actively promoting price increases. Since May 20, some regional markets in East China, Central China, Northeast China, Southwest China and Northwest China have announced an increase in cement prices of 20 yuan to 50 yuan/ton.

On May 29, the State Council issued the “2024-2025 Energy Conservation and Carbon Reduction Action Plan”, which clearly requires that by the end of 2025, the country's cement clinker production capacity should be controlled at around 1.8 billion tons. New construction, renovation and expansion of cement, ceramics, and flat glass projects must meet the energy efficiency benchmark level and environmental performance grade A level. Vigorously develop green building materials and promote the commercialization of basic raw materials, lightweight wall insulation materials, and assembly of decoration materials.

Furthermore, by the end of 2025, the cement and ceramics industry will account for 30% of production capacity above the energy efficiency benchmark level, the flat glass industry will account for 20% of production capacity above the energy efficiency benchmark level, and production capacity below the energy efficiency benchmark level in the building materials industry will complete technological transformation or be eliminated.

In response, Conch Cement said that controlling the total volume of 1.8 billion tons of cement clinker is beneficial to the development of the industry as a whole, and controlling the total amount has become a trend. Furthermore, the country has put forward higher requirements for additional production capacity, and the entry threshold for the industry has been raised to a large extent.

CITIC Construction Investment pointed out that due to the imminent implementation of the new cement standards, most regional companies are actively promoting price increases in order to increase transmission costs, and it is expected that prices will continue to increase in the later stages. The price of cement in North China is generally stable. Cement prices in the Beijing-Tianjin-Tang region have stabilized for the time being. Prices of cement clinker in Shanxi have been announced to have risen by 30 yuan/ton, and cement prices in Northeast China have continued to rise.

According to the Huatai Securities Research Report, although demand is still not the core driving this round of price increases, there are four important differences worth paying attention to: 1. Compared to the repricing led by the Yangtze River Delta market in early April, this round of repricing has a wider scope and greater intensity; 2. Early prices in some peripheral markets have been repaired, laying a better foundation for price implementation in core markets; 3. Leading enterprises are more determined to lead; 4. Clinker prices are increasing more strongly than before, and it is expected that independent grinding stations will better curb market disturbances. The bank anticipates that the implementation of this round of price increases is expected to be more solid. While promoting marginal improvements in the profitability of the industry, it is also expected to bring better revaluation opportunities to the sector.

Jia Yameng, an analyst at China Galaxy Securities, said that cement prices have continued to rise recently. Looking ahead, demand may gradually decrease as the rainy season in the south approaches in June. In early June, some provinces began a new round of kiln shutdowns, and the contraction in supply helped maintain current price levels. Furthermore, the price of coal and the implementation of the new national standard will support cement prices on the cost side. Jia Yameng suggested paying attention to changes in downstream demand and implementation of cement price increases.

Related concept stocks:

China Building Materials (03323): The company operates cement, lightweight building materials, glass fiber and composite materials and engineering services. The company's sales scope covers the whole country, supplying infrastructure and real estate.

China Resources Cement Holdings (01313): The company's main business is the production, sale and service of cement, concrete and related products.

Conch cement (00914): Mainly engaged in the production and sale of cement and commercial clinker. The company has successively built 5 large 10 million ton clinker bases in Tongling, Yingde, Chizhou, Zongyang, and Wuhu, and has built 4 12,000 ton production lines in Wuhu, Anhui, and Yangchun, Guangdong.

Huaxin Cement (06655): The company is involved in the fields of cement, concrete, aggregates, environmental protection, equipment manufacturing and engineering, and new building materials.