The cement industry is divided into North and South

2011 was a year in which the cement industry was “concentrated”. In that year, regardless of the north and south, cement in all parts of the country enjoyed a high degree of prosperity. Taking the listed companies as examples, the profitability and ROE in 2011 both reached a very high level.

In 2014, it was a key node year, and the total cement output hit a record high. After that year, it did not exceed this figure. The cement company's profit was also good.

The time flow shifted to 2017 and 2018, and the earnings of cement companies once again ushered in glory. However, unlike in 2011, this time, there was a clear differentiation in the southern and northern regions. Cement companies in the South have a new record of profitability, while northern companies are less profitable.

From the Differentiation of "Quantity" in North and South Area to See the Secret of Supply and Demand behind

From the medium-term (three-year) and long-term (six-year) data, the main direct cause of the profit difference between the North and the South in 2017-2018 and 2011 and 2014 is the differentiation of “quantity”. What is the supply and demand logic behind it?

From the perspective of population, we can see the changes in demand in the medium to long term: In terms of sub-regions, the changes in demand in 2017 compared to 2011 and 2017 compared to 2014 will change. We can see that the demand in North China and Northeast China has dropped significantly due to the situation in comparison with listed companies; demand growth has been the best in the southwest, and has also increased in South China; in the medium to long term, population movements have determined regional demand changes, and South and East China are the population. The net inflow to major regions is the most fundamental reason for the better performance of its cement demand (as well as GDP). The northeast is the main area of ​​net outflow of the population and its cement demand (as well as GDP) is the worst; this trend is expected to continue in the future. continued.

Looking at the short-term supply impact from the perspective of peak output discontinued production: The output data can be understood as either “needs” (the longer-term perspective is closer to the representative demand) or “supply” (the closer the short-term perspective is to the representative supply), In the short term, the biggest difference in this cycle comes from supply-side contraction (supply-side reforms). The cement industry is mainly represented by the peak production of the 15 provinces in the north, which causes the industry’s overall supply contraction, which is mainly due to the contribution of the northern region. (Of course, the peak production in the fifteen provinces in the North is also self-salvation in the region, mainly due to the excessive production capacity in the northern region since 2010, resulting in a serious excess of production capacity), which results in the redistribution of profits between the north and the south. "Loss is less, so "profit" will benefit even more. This can also explain why Conch and China Resources have the greatest flexibility in this cycle.

Demand is tough, marginal supply continues to tighten, and the third quarter is expected to be off-season

From the perspective of high-frequency data since 2018, first of all, the demand side maintained strong resilience, especially in the southwest and south China, and the demand in the east China region was relatively stable. The low inventory situation in real estate weakened the real estate demand fluctuation; In the case of high cement prices and high ROE, the supply of the industry still maintained a marginal contraction trend, with peak production, environmental shutdowns and coordinated shutdowns. It is expected that the industry supply contraction will be greater in the first three quarters of 2018 than in the same period in 2017; again, due to demand Steady + supply contraction, the industry's dynamic supply and demand relationship data has always been at a relatively low level of absolute value, cement prices remain high and volatile. Comprehensive supply and demand relationship and storage capacity ratio data, the high probability of the third quarter showed the situation is not light in the off-season.

The off-season is not light, we expect the poor to welcome the repair window

From the perspective of supply and demand structure analysis, we expect that in the third quarter of 2018, we believe that in the third quarter, the high probability of the off-season is not weak (smooth demand + supply contraction + low storage capacity ratio). The cement company's annual earnings in the south are expected to continue exceeding expectations.