Post-national congress infrastructure spree 'set to soak up' cement glut
West China Cement tips demand to rise as new leadership unveils infrastructure policies
West China Cement is banking on greater spending on infrastructure to lift demand for cement, once the Communist Party's 18th national congress wraps up next month.
The Hong Kong-listed firm's annual cement production capacity is 23 million tonnes, of which 21 million tonnes is in its home province of Shaanxi and two million tonnes in the Xinjiang Uygur Autonomous Region.
"In the first half, there were virtually no infrastructure projects in Shaanxi because of the government's macro-cooling measures," chairman and co-founder Zhang Jimin said.
"After the 18th congress, infrastructure investment will pick up because new policies will be launched by the new leadership that takes over."
Zhang said the mainland cement producer planned to spend two billion yuan (HK$2.46 billion) to raise its annual cement production capacity to more than 30 million tonnes in 2015.
Already from July to September, West China Cement's profits and sales grew both on a year-on-year basis and from the first half, Zhang added.
The cement price in Shaanxi was 278 yuan per tonne in the third quarter, the same as the second quarter.
In Hotan prefecture in Xinjiang, which the company says is its core market in the region, the authorities planned to plough 20 billion yuan into infrastructure projects such as roads, railways, airports, reservoirs and affordable housing from 2009 to 2013, offering prospects for the firm.
West China Cement also hopes to supply cement for a government project to relocate residents in southern Shaanxi. That project is expected to cost 110 billion yuan from 2010 to 2020 and require up to 14 million tonnes of cement.
Zhang said the present cement glut in Shaanxi should end over the next year, as various high-speed railway projects took off in the province.
He said West China Cement had plants along the route of the planned Xian-Chengdu high-speed railway. Tendering for cement supply would begin soon, he said. "Having cement plants along that railway is an advantage."
The company also had plants along the Xian-Beijing high-speed railway and was supplying half the cement for the Shaanxi section, Zhang said. The Xian-Beijing railway will start service in 2015.
But, Zhang did not see many immediate prospects opening up in Shaanxi's cash-strapped expressway sector.
The Shaanxi government planned to double the province's expressways from the present 3,000 kilometres to 6,000km by 2015, but that was not realistic, given the shortage of funds, Zhang said. The 6,000km target would be reached between 2016 and 2020, he added.
During the first half of this year, West China Cement's net profit plunged 65 per cent to 148 million yuan, which was below market expectations, due to a 19 per cent drop in sales prices, an Industrial and Commercial Bank report said.
A recent CIMB report said: "We expect a stronger second half [for West China Cement] as prices in Shaanxi have bottomed due to strong demand growth from railway projects."
While ICBC forecast West China Cement's net profit to be 479 million yuan this year, down from 662 million yuan last year, CIMB is more bullish at 544 million yuan for the full year.