Preliminary assessment of impact from the Sichuan earthquake: We
made a preliminary assessment on the potential impact in supply/demand of
basic materials, such as cement, coal and steel. We expect the rebuilding
demand would nearly double Sichuan’s cement market during the rebuilding
period. However, we see a limited impact on coal and steel. The long-term
implications from the quake would lie on more stringent and higher
requirements of building materials, which could trigger aggressive closures
of vertical kilns and increase the use of high strength construction steel.
■  Steel – continued cost push drives strong margins of large mills:
Chinese steel production growth in April remained at 4% behind growth of
the apparent consumption. HRC spot is at US$703/t, up US$41/t MoM.
Rebar stands at US$667/t, up US$60/t, mostly driven by recent spot iron ore
and freight. We maintain our positive view on construction steel and are
cautious on flat steel on 6-12 months. We believe the earnings momentum
would remain in 2Q08, and the upcoming Baosteel’s 3Q08 pricing
announcement may generate short-term upside risks to the steel stocks.
■  Coal – tight domestic market: The domestic thermal coal price at QHD
improved to US$84/t, up 52% YoY, and 10% QoQ. SERC suggested overall
coal inventory at power plants is at 42 mn tonnes, or 11-12 days in our
estimates, not critically low but serves as an indication of a tight market.
■  Cement – rising coal cost, higher cement prices: Cement price uptrend
remains on track of our above-consensus view. Anhui Conch estimated that
its 2Q08 cement price is up 10% QoQ, or at Rmb230/t, up 15% YoY.