Cement prices stabilized last week. The average cement price (nationwide) has stabilized at RMB247.75/tonne since mid-April. Cement prices in parts of Shandong, Zhejiang and Qinghai were up RMB10-30/tonne, while prices in parts of Fujian and Hunan declined up to RMB10/tonne. Market demand in the northwest and northeast areas continued to recover, with daily shipment volume rising 10%-20% week on week. However, demand in east and south central China went down a bit owing to rainfall. The average inventory level (nationwide) declined slightly to 67.8%. Prices should keep going up once the weather improves, in our view.

　　Coal prices stabilized for the last six weeks. The comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) has stabilized at RMB389/tonne since early March. The index was 12% lower on a year-on-year (YoY) basis.

　　Some listed cement producers recorded a net loss in Q1 but this is not a surprise. TCCI [0743.HK], Tongli Cement [000885.CH] and Qilianshan Cement [600720.CH] all recorded a net loss for Q1 according to the results released last week. CR Cement [1313.HK; HOLD] also recorded a HK$19m recurring net loss, after excluding an FX gain of HK$25m. The net losses reported are not surprising, in our view, as demand remained weak in 2M2016, with the recovery mainly in March. Given the very strong economic data in March, we maintain the view that the recovery momentum will remain intact in Q2. Based on our checks, orders for tubular piles for infrastructure projects look good so far, as they narrowed from a double-digit YoY decline early this year to a single-digit decline in March. Some orders were already booked to June according to our source, so we can expect a continued recovery for infrastructure projects in this quarter. On the property side, however, concrete sales in south China were not as good as expected, according to a major concrete producer in the region. We will closely monitor the situation. Meanwhile, the overheated steel futures trading may increase the volatility of share prices of construction material stocks, including cement. Since there are no cement futures in China, cement prices are driven largely by actual demand. Therefore, we believe any share price correction caused by the huge volatility in the steel futures market should offer a good buying opportunity.

　　Cement stocks under coverage down 5.8% on average. We saw profit-taking after a rally of 10.8% the previous week. Best performer CNBM [3323.HK;SELL] declined 3.9%. BBMG [2009.HK;HOLD] was the weakest among our coverage stocks, down 9.0%.