The writer is an analyst of NH Funding & Securities. He may be reached at email@example.com. — Ed.
Cement briefly provide owing to peak season demand and funding in different fuel-based services
Over the previous decade, clinker output has didn’t surpass 50mn tons pa, with the kiln utilization fee averaging as little as 74%. Contemplating annual clinker manufacturing capability, it appears tough for the cement sector to face tight provide. However, since March, information of a provide scarcity has emerged. Cement corporations have invested in different fuel-based services as a way to lower GHG emissions as a part of their ESG administration efforts. However, kilns can’t function whereas different fuel-based services are being put in. They’re additionally inoperable throughout common upkeep within the winter. Final winter, cement corporations started enterprise common upkeep and set up of other fuel-based services on the similar time, and the method has been delayed. Accordingly, with month-to-month cement demand estimated at over 4mn tons within the spring, cement provide disruptions have occurred.
Count on rising demand, worth hike, and facility funding results
Whereas cement demand from SOC initiatives stays regular, demand fluctuates relying on residential and industrial actual property components. On condition that housing begins are projected to exceed 600,000 items in 2021, cement demand is prone to climb above 48.5mn tons. With housing begins starting to rise from 2H20 and development corporations in want of dashing up their development work on account of delays brought on by Covid-19, home cement demand ought to improve quickly. We additionally word that cement corporations have agreed on worth hikes. Amid a rising want for a steady provide of prepared combine concrete (remicon), the value hikes by cement corporations and a delay in upkeep work have prompted provide disruptions. Remicon companies, standing in between development and cement corporations, are in a tough place as they’re anticipated to deal with cement provide disruptions and worth hikes whereas additionally offering a steady provide of remicon. In the meantime, Ssangyong C&E, having already accomplished its first section of funding in different fuel-based services, has began to benefit from the results of the funding from 2020. At present, the corporate has a complete of 4 different fuel-based services in operation, having began them January, July, August, and October of final yr, respectively.
Earnings to enhance in earnest from 2H21
From 2H21, cement demand and costs are prone to rise, and price saving results are anticipated from the operation of other fuel-based services. These three positives ought to mix to drive up earnings at cement gamers from 2H21. Over the previous 5 years, the typical OPM for Ssangyong C&E, Asia Cement, and Sampyo Cement has improved greater than 11percentp q-q in 2Q. In 2021, their OPM is projected to leap to fifteen.9%, with their OP set to return to 2017 ranges.