It is reported by the Zhixin Finance APP that according to a research report released by CICC, on June 14-15, in most areas of southern Guangdong, Guangxi, and Hainan, the price of cement was announced to be increased by 20-40 yuan/ton. According to Zhuochuang, the local cement companies in Guangdong are still able to ship and the leading companies still intend to raise prices to reduce losses. They intend to push the second round of price increases in the cement sector in the Zhujiang River Delta on June 26th. If the next round of price increases in the southern region is successfully implemented, the profitability of enterprises in the region is expected to further recover, and the industry price ecosystem may gradually become reasonable. In addition, if the carbon trading policy related to the industry is implemented subsequently, it is expected to work in conjunction with the current supply-side control and energy-saving and carbon-reducing policies, forming a more substantial supply-side pressure reduction and ultimately pointing to a clearer supply clearance. It is expected to provide support to the industry's business climate in the weak demand phase.

CICC's main points are as follows:

The call for price increases to reduce losses has been consistent throughout the cement industry after being suppressed for a long time due to rainy weather and decreasing demand in South China.

According to the China Cement Association, the cement production of Guangdong and Guangxi in January-May decreased by 9.2%/9.7% year-on-year, and the monthly output in May decreased by 16.4%/19.7% year-on-year respectively. The pressure of decreasing demand is particularly prominent. In addition, the excessive rainy weather in southern China in the second quarter of this year has brought unfavorable effects to engineering construction and cement enterprise shipments, which has resulted in the regional prices hovering at the bottom and failing to rise. CICC estimates that most enterprises in the south will be in operating losses before the price increase in June, so the call for price increases to reduce losses within the region has gradually strengthened. Against the backdrop of weak demand, relatively ideal price implementation effects have been achieved. If the next round of price increases in the southern region is successfully implemented, the profitability of enterprises in the region is expected to further recover, and the industry price ecosystem may gradually become reasonable.

The industry actively proposed the call for price increases to 'save itself', and the profitability expectations of the sector may gradually improve.

CICC pointed out that looking back at the price recovery of various regions since April, it is mainly due to most businesses gradually recognizing the objective background of decreasing demand and exploring new pricing strategies. Currently, the low pricing and low profitability of the industry is promoting the industry's active call for price increases to 'save itself' and restore profitability. In the second half of the year, the decrease in demand is expected to narrow with the release of infrastructure and engineering physical demand. Against the backdrop of the improved demand margin, the atmosphere of malicious price competition in the industry may gradually fade away, and the entire industry may usher in moderate price recovery, and the expected profitability of the sector may gradually improve.

Aside from the price increase situation, it is recommended to also pay attention to the support effect of new changes in the supply-side policy on the business climate of the industry.

CICC believes that under the background of decreasing demand and intensified competition in the industry, if the energy efficiency and carbon reduction regulations launched in May are strictly enforced, the elimination of low-efficiency production capacity in the industry can be expected to a certain extent, which will help to repair the supply-demand relationship of the industry. At the same time, if the subsequent carbon trading policy related to the industry can be implemented, it may work in conjunction with the current supply-side control and energy-saving and carbon-reducing policies, forming a more substantial supply-side pressure reduction and ultimately pointing to a clearer supply clearance, which will be expected to provide support to the business climate of the industry in the weak demand phase.

Related stocks: CR Building Materials Technology (01313), which is expected to stand out and benefit from the price increase in southern China, and has strong potential profit elasticity. It is recommended to pay attention to Conch Cement (600585.SH), Huaxin Cement (600801.SH), Shangfeng Cement (000672.SZ), and Tapai Group (002233.SZ).

Risk factors: The sustainability of the price increase is lower than expected, and the industry price competition intensifies again.