Cement stocks are surging on expectations that the government will expand housing supply. Demand for cement has shrunk to levels last seen in the early 1990s, but a pickup in construction starts, the government's Aug. 13 supply measures and easing cost pressure from a stronger won have combined to fuel hopes of a turnaround in the industry.
Shares of Asia Cement rose 18.54%, Hanil Cement 17.48%, Sampyo Cement 12.13% and Sungshin Cement 11.94% from the end of last month, according to the Korea Exchange on the 27th. All four stocks advanced on at least 10 of the 17 trading days this month.
Analysts attribute the rally to a rebound in construction shares and a broader recovery in investor sentiment toward building materials. Leading indicators of demand within the cement sector have also improved. Building construction starts totaled 40.04 million square meters in the first half of this year, up 9.0% from a year earlier, while housing starts rose 14.4% to 118,005 units. Because cement use picks up after groundbreaking, once earthwork and foundation work are under way, the share price gains reflect expectations of a volume recovery in the second half.
The government's Aug. 13 supply measures were also a major factor. The plan focuses on cutting the average time from the designation of public housing districts to groundbreaking to 37 months from 68 months, and on increasing construction starts in the greater Seoul area. Domestic cement shipments are expected to reach just 36 million tons this year, and the industry is seen as having passed a demand trough and reached a turning point.
Cost conditions are also favorable. The decline in the won-dollar exchange rate partly offsets the burden of rising prices for imported bituminous coal. Of the industry's 429.7 billion won ($318 million) in planned capital spending this year, 384.4 billion won, or 89.5%, is earmarked for energy efficiency, environmental, safety and maintenance investments. "As shipments increase, we will see both a lighter fixed-cost burden from higher utilization rates and improved profitability from wider use of alternative fuels," said Ryu Tae-hwan, an analyst at Eugene Investment & Securities.
