Zhongjin: Cement prices are raising, 1Q profit is expected to greatly improve.

CICC released a research report stating that by 2025, there will still be some downward pressure on cement demand (estimated to decrease by low to mid single digits), but there will be significant positive changes on the supply side: 1) In the short term, the industry's off-peak production days will be further strengthened, and the industry's supply coordination awareness will improve. Current prices and costs are better than the same period last year; 2) In the long term, a new round of supply-side reforms is gradually starting, and by 2025, it is expected that the actual clinker production capacity will be reduced by approximately 20% through filling in excess capacity. In addition, carbon emission constraints are also expected to gradually be implemented. The bank expects that the profit center in 2025 will continue to show significant improvement compared to 2024. Key points from CICC are as follows: Steady increase in demand during peak season, the curtain for price increases has been raised According to digital cement network, cement prices in East China and South China have recently increased by 10-30 yuan/ton, with good acceptance from downstream buyers. In early March, the Northern region saw price increases exceeding expectations, with cement companies in Beijing, Tianjin, and Tangshan planning to raise prices by 100 yuan/ton, with expectations of a landing around 30 yuan/ton. Cement companies in the Heilongjiang and Liaoning regions have successively announced price increases of 50 yuan/ton. The national cement shipment rate from 1Q25 to date is 25%, slightly lower than the 29% of the same period last year. The shipment rate was 31% on the second day of the second month of the lunar calendar (compared to 43% on the same day last year), showing relatively flat demand performance. However, with the issuance of special bonds this year and an increase in the funding rate from Century Architecture Network compared to last year, the bank expects that the year-on-year decline in cement demand during the peak season can be controlled within single digits, and the expected price increase during the peak season will continue to drive smoothly. Expect a significant increase in profits in the first quarter after a year of low prices The bank has observed that the national cement price as of the end of February reached 394 yuan/ton (higher than the 359 yuan/ton of the same period last year) and there is still a relatively unified consensus within the industry on price stability. If the demand during the peak season returns to normal levels (i.e. a single-digit year-on-year decrease), cement prices are expected to continue to rise; coal prices are approximately 200 yuan/ton lower than the same period last year, and there is a lower probability of a significant short-term increase. In 1Q25, the national industry's simulated ton gross profit has a significant advantage compared to the same period last year, and the cement-coal price difference in March may further widen. Additionally, the current storage capacity ratio is 57% (compared to 63% of the same period last year), which also provides some support for future price increases. A significant increase in profits in the first quarter can be expected, which is likely to provide strong support for the valuation of the industry sector.