Zhongtai: Accelerating supply clearance in the cement industry will help to rebalance supply and demand, and profitability is expected to gradually improve.

Zhongtai released a research report stating that as a typical high carbon emission industry, the cement industry is facing weakened downstream demand. On one hand, with internal outdated production capacity facing higher costs under carbon constraints, competitiveness is further weakened, leading to potential accelerated exits. On the other hand, local governments may reduce cement industry carbon quotas in order to develop higher value-added industries under limited carbon quotas, thus speeding up the industry's capacity clearing. Currently, the cement industry is at a profit bottom, with supply clearing accelerating industry supply and demand re-balancing, and the profitability of the cement industry is expected to gradually recover. Zhongtai's main points are as follows: Carbon assessment results will become an important reference for official appointments After the proposal of the dual carbon goals in 2020, China has built a policy system centered on "1+N." The "dual carbon" policy has transitioned from the top-level design stage to the comprehensive implementation stage. During the 14th Five-Year Plan period, CO2 emissions per unit of GDP decreased by 12.42% (failing to achieve the set target of 18% by 2021), with an annual compound decrease of 2.62%. The decarbonization targets in the 15th Five-Year Plan are higher and more challenging, with stronger constraints on high carbon industries. According to the calculation of the cumulative reduction of CO2 emissions per unit of GDP by 17% during the 15th Five-Year Plan period as proposed in the 2026 government work report, CO2 emissions per unit of GDP need to decrease annually by 3.66% during the 15th Five-Year Plan period. In April 2026, the Central Office and the State Council officially issued the "Comprehensive Evaluation and Assessment Method for Carbon Peak and Carbon Neutrality." The release of the assessment method marks the reduction in carbon emissions and optimization of energy structure, which, like GDP growth and social stability, will become an important indicator to measure the leadership abilities of officials and may end the "lukewarm" state of local governments in the work of dual carbon. The cement industry has a large carbon emission volume and noticeable rigid characteristics in process emissions. After peak demand, the cement industry has achieved carbon peak The building materials industry (cement industry accounts for 80%) has a carbon emission volume of about 13% of the national total, second only to the electricity and steel industries. Greenhouse gases emitted during cement production are mainly CO, with the carbon emissions in the clinker calcination process accounting for over 95%, mainly from combustion emissions (about 35%) from fossil fuel combustion and process emissions (about 60%) from carbonate raw material decomposition. In 2014, cement production reached a historical peak of 2.476 billion tons, with industry CO2 emissions peaking at 1.429 billion tons in 2020. Considering that the peak period of traditional infrastructure construction such as roads/railways and real estate construction in China has passed, the cement industry has achieved carbon peak. The cement industry's carbon quota allocation rules have been fully implemented Cement industry units with annual direct CO2 emissions reaching 26,000 tons are included in the national carbon emission trading market management. 2024 is the first year of control for the cement industry, with quotas being allocated based on verified actual carbon emissions; from 2025 to 2026, the industry will reasonably determine the surplus and deficit rates of quotas, achieving a balance in overall quotas surplus and deficit. Quota allocation and clearance for 2025 are to be completed in 2026. Carbon reduction has costs, but carbon reduction has benefits The cement industry's carbon quota is related to cement enterprise carbon emissions, carbon emission intensity, and industry balance value. To incentivize advanced companies while also urging backward ones without causing significant short-term impact on the industry, the industry's carbon quota surplus and deficit rate is controlled within a floating range of 3%, with companies exceeding 20% of the benchmark capped at +3% and companies falling below 20% below the benchmark capped at -3%. The carbon emission intensity of leading cement enterprises is generally lower than the industry average and decreasing year by year. Through quantitative calculations from both a micro perspective and a macro industry perspective: under neutral policy expectations, top enterprises are expected to generate an excess profit of 1.21 yuan/ton of clinker compared to bottom enterprises due to carbon trading. Top enterprises may enjoy the additional profits brought by the surplus carbon quotas due to their low-carbon advantages; while bottom enterprises face higher pressure for emission reduction and carbon costs, the industry's "Matthew effect" will further highlight. From a macro perspective, it is estimated that the carbon trading amount for the cement industry in 2026 is 2.9 billion yuan (industry expected profit of less than 30 billion yuan), referencing the power industry. Risk warning: Uncertainties in policy intensity and pace, significant decline in cement demand, outdated research report information, third-party data inaccuracies, and market size estimation deviations.