Construction material producers should target SW China

Areas with high population density and underdeveloped economies will provide more opportunities for construction material producers in the middle to long term, analysts say.

Although Shanghai has unveiled its free trade zone plan, experts said there is unlikely to be a spike in demand for building materials such as steel and cement.

“In fact, the city's construction boom has gone, and the demand for building materials has been shrinking since the Shanghai Expo 2010,” said Mi Yezhou, executive director of equities research with UBS Securities Co Ltd, on Thursday.

Mi said southwestern parts of the country have brighter prospects than well-developed regions for construction material companies in the medium- to long-term.

Companies dealing in construction materials posted mixed performances in the first half of this year. More than half of steel mills forecast losses for the first six months, while quite a few cement companies anticipated more than 100 percent year-on-year growth during the same period.

“The steel market is on the decline. Even those reporting a profit growth have not seen their core businesses getting better, but it is a result of lowering costs and asset restructuring to stay profitable,” Mi added.