There was a seasonal correction in East China cement prices. Prices in the national cement market fell 1.0% month-on-month this week. Prices were reduced mainly in Jiangsu, Anhui, Fujian, Henan, Hunan, Guangxi and Yunnan regions, with a range of 10-40 yuan/ton. At the end of December, some regional engineering projects were still in the rush phase, and the decline in overall market demand was not obvious. On the price side, during the final demand period, some regional companies began to be willing to cut prices and clear the inventory, causing prices to continue to show a slight downward trend. As market capital is still tight and affected by off-season factors, market demand is expected to shrink significantly in January, and prices will continue to decline.

The price of cement continues to drop in East China. The price of cement in Nanjing, Jiangsu was reduced by 10-20 yuan/ton. Demand for cement was average, and inventories were running high. Affected by price cuts in surrounding areas, the company made minor adjustments in order to stabilize customers. The price of cement in the Hefei region of Anhui was reduced by 10-20 yuan/ton. The price reduction was mainly due to a succession of falling prices in peripheral regions. In order to maintain market share, enterprises followed up the cuts. Along the river, cement prices in the Wuhu and Tongling regions are weakening, and the effective construction period continues to be shortened, and the market is bearish. Downstream has begun to control the volume of goods received. Shipments by enterprises are at 6-70%. Some companies have declined steeply, and others are willing to stabilize prices until the end of the month.

Prices remained generally stable in the fourth quarter, and industry self-regulation began to bear fruit. Before the National Day this year, the price of clinker cement in many parts of the Yangtze River Delta rose sharply by 100 yuan. Prior to the price increase, the average price of cement in East China had dropped to around 370 yuan/ton, which is close to the lower price compared to the high price in the 21-year cycle. In the first three quarters of 24, East China cement prices generally showed a downward trend. The profit level of East China cement companies continued to weaken. In September '24, all enterprises in the Yangtze River Delta were in a break-even or loss-making state, and all enterprises had strong demands to improve profits. After the price increase at the end of September, cement prices in East China generally stabilized at a high level in 24Q4. There was only a slight correction in December, and industry self-discipline began to pay off. The significance of the successful price increase for the company is that: 1) 24Q4 corporate profits will improve significantly from month to month; 2) the profit improvement brought about by the successful price increase will strengthen the East China cement industry's sense of self-discipline, which is conducive to further maintaining a good price order, avoiding internal competition, and more secure profit stability; 3) The price at the end of '24 is at a high level, which is more conducive to a significant increase in the average price for the whole of '25, and the company's profit in '25 is expected to improve markedly.

Investment advice: The dark time is over, and 25 years of profit will see a significant improvement. In the first 11 months of 2024, the country's cement production was -10% year-on-year, mainly driven by declining demand for infrastructure real estate. In the first three quarters of 24, cement prices in East China continued to decline, putting a lot of pressure on the profit levels of many companies in the region. After the successful price increase in 24Q4, profits in the single quarter are expected to improve markedly. In this context, it is expected that companies will still be more willing to raise prices in '25. It is judged that the average price will increase significantly year-on-year for the full year of '25, and the company's profits will improve significantly. Based on the above judgment, we raised the company's 2024-2026 net profit forecast to 8.5 billion yuan (up 7%), 10.2 billion yuan (up 19%), and 11.1 billion yuan (up 0.2%), respectively, and maintained a “buy” rating for both the company's A shares and H shares.

Risk warning: the risk that demand falls short of expectations, the risk that the industry's supply and demand pattern will deteriorate, the risk that the price of raw fuel materials will continue to rise sharply, uncertainty about overseas investment, and the risk of exchange gains and losses, etc.