Rising product prices lift earnings outlook at cement maker CNBM
China National Building Material expects second-half profit to be boosted by rising cement prices after earnings more than doubled in the first six months amid surging demand.
First-half net profit of the mainland's second-largest cement producer grew 112.8 per cent to 545.55 million yuan (HK$621.77 million) from 256.42 million yuan a year earlier while revenue increased 169.63 per cent to 9.82 billion yuan.
'China National Building Material has enlarged production by acquisitions and cement producers are also benefiting from rebuilding in earthquake-shattered Sichuan province,' chairman Song Zhiping said in a statement.
The company has planned to spend 33.3 billion yuan on acquisitions to expand in southern China and the Huaihai area in Jiangsu, Anhui, Henan and Shandong provinces.
Total annual cement output will increase to 174 million tonnes by next year from 11 million tonnes in 2006, giving it a larger market share and better pricing power.
CNBM production doubled in the first six months to 10.8 million tonnes of cement and 11.5 million tonnes of clinker.
Cement is produced by grinding clinker into powder.
According to figures from the National Development and Reform Commission, the mainland produced about 648.05 million tonnes of cement in the first half and eliminated about 20 million tonnes of capacity.
The central government has been closing small cement producers and encouraging big firms to take over the more polluting and inefficient manufacturers.
The 11th Five-Year Programme aims to eliminate 250 million tonnes of production at sub-standard manufacturers.
'Profit margin of China National Building Material has improved since the second quarter of this year as it benefits from intensive old capacity closure in Shandong and Zhejiang, which drove retail prices up,' Bruce Wang, an analyst at BNP Paribas, wrote in a report.
BNP Paribas estimates CNBM has a 60 per cent market share in Zhejiang province, compared with rival Anhui Conch Cement's 10 per cent.
The company's average selling price for cement in the first half was 210 yuan a tonne, up from 189 yuan a year earlier.
The price of clinker rose to 197 yuan a tonne from 156 yuan.
Average cement prices rose 7 per cent last year on the mainland, and industry players expect growth to be maintained at a similar pace or even faster this year.
CNBM is also involved in three other businesses involving lightweight building materials, glass fibre and the development of cement technology, which analysts expect to provide stable profit margins in the second half.
