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Building Materials

Cement prices continued to outperform last week given a supply cut and recovery of demand

■ The average cement price outperformed other sectors last week, increasing 11.0% wow. Plastic pipe prices increased 4.52% wow, and the futures glass price was down 7.8% wow last week.
■ Building materials stocks under our coverage decreased by 6.33% wow, on average, underperforming the Hang Seng Index (HSI) increase of 4.9%. Conch Cement-A’s [600585.CH.HK; ADD] share price was best performer last week, while China Lesso [2128.HK; ADD] was a laggard.
■ The underperformance of the building materials sector was due to concerns about downstream segments, triggered by news flow on the China property sector. We believe that the cement sector will continue to outperform, given the supply cuts due to stringent implementation of dual energy consumption controls in some provinces and the recovery of downstream demand during the peak season.

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Overview of the cement sector last week

The average price (nationwide) of 42.5 grade cement surged by 11.0% to Rmb506/tonne last week. Apart from north China, the other regions recorded a surge of Rmb30– 150/tonne in cement prices. In August, national cement production volume dropped 5.22% yoy to 215.2m tonnes. This was due to a reduction in construction activity, a
temporary production suspension, and a local COVID-19 lockdown in August. Northeast and southwest China recorded the highest yoy drop in production volume, with a decrease of 11.4% and 13.3%, respectively. Production volume in east and south China dropped moderately, with a decrease of 1.9% and 8.1%, respectively.

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Overview of the glass and plastic pipe sectors last week

Prices of glass and plastic pipe were mixed last week. The seven-day average float glass futures price was down 7.8% wow and up 34.5% YTD to Rmb2,430/tonne. The market prices for PVC and HDPE fluctuated between 0.07% and 4.52% wow last week.

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All raw material prices increased last week

The comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) increased by Rmb12/tonne to Rmb733/tonne last week, up 1.66% wow and 34.00% yoy. The seven-day average price for national light soda ash, which is the main raw material for glass, was up 36.6% yoy and 3.08% wow to Rmb2,403/tonne. The seven-day average
spot price for crude oil, the main raw material for plastic pipe, was up 85.58% yoy and up 0.78% wow, to US$75.5/barrel.

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Building materials stocks dropped by 6.33% on average

The share price of best-performer Conch Cement-A [600585.CH; ADD] was down 1.37% last week. China Lesso [2128.HK; ADD], the weakest among our coverage stocks.