(I) Demand: Slowing Real Estate Decline, Modest Infrastructure Rebound

The Central Economic Work Conference in December 2025 emphasized accelerating the development of a new real estate model, stabilizing the property market, implementing city-specific policies to control new construction, reduce inventory, and optimize supply, while encouraging the acquisition of existing commercial housing primarily for affordable housing. This indicates that policy priorities remain focused on absorbing existing inventory and controlling new additions, suggesting the real estate market's stabilization and recovery will still require time. Both sales area and new construction area currently show signs of slow stabilization, with no significant improvement expected in the short term. Investment is projected to decline further in 2026, though at a narrowing pace, while cement consumption in the real estate sector is expected to continue its year-on-year decline.

Regarding infrastructure, we anticipate investment will return to positive growth in 2026, leading to improved cement demand from infrastructure projects. The 15th Five-Year Plan proposal emphasizes strengthening planning and feasibility studies, implementing a series of major landmark projects, and advancing the high-quality implementation of national strategic initiatives and key security capability projects. As the opening year of the 15th Five-Year Plan, 2026 is expected to see increased issuance of special bonds and ultra-long-term special treasury bonds, leading to a rebound in infrastructure investment. However, under debt-reduction policies, transportation and municipal infrastructure investment—closely linked to cement demand—may remain sluggish. Overall infrastructure support for cement demand is projected to improve, though the strength may remain limited.

In summary, with the property sector continuing its downturn and insufficient infrastructure support, cement demand is expected to remain in a downward trajectory in 2026. We project annual cement production for 2026 to hover around 1.6 billion tons, representing a year-on-year decline of approximately 5%.

(II) Supply: New Capacity Additions Likely to Fall Short of Expectations, Supply Contraction Intensifies

According to tracking by the Cement Big Data Research Institute of China Cement Network, 12 new clinker production lines with a combined capacity of nearly 18 million tons are scheduled to come online in 2026. Over 10 million tons of this capacity stems from technical upgrades or relocation projects. Given the industry's continued operational pressures in 2026, the release pace of new capacity is expected to remain below expectations, keeping overall supply pressures manageable.

Additionally, nearly 300 production lines are currently undergoing capacity replacement, with cumulative net capacity exits exceeding 50 million tons. Under capacity management policies, numerous projects are expected to continue capacity replacement in 2026, driving sustained exit of excess capacity. Concurrently, production compliance with approved capacity will become more standardized, effectively strengthening supply contraction.

(3) Market Conditions: Low-Level Price Rebound, Year-End Uptrend

In 2025, cement prices declined steadily throughout the year due to insufficient demand and intense market competition, reaching unusually low levels in the fourth quarter. In 2026, capacity expansion efforts will continue, while stricter compliance constraints on production will tighten supply-side controls. This is expected to gradually restore balance between cement supply and demand. Cement prices are projected to rebound from low levels, exhibiting a “lower first half, higher second half” trend, with the latter half potentially surpassing the same period in 2025. However, caution is warranted as demand remains on a downward trajectory. Additionally, the competitive dynamics among major enterprises carry significant uncertainty, making the foundation for substantial price hikes relatively weak. Overall, the scope for cement price recovery is likely to be limited.

(4) Profitability: Low-Level Recovery, Annual Levels Still Low

For 2026, we anticipate that industry profits will continue to recover from low levels amid effective supply management and cement price rebounds. The annual industry profit margin is projected to hover around 3%–4%. However, if demand declines more sharply than expected, capacity management policies prove ineffective, disorderly market competition persists without significant improvement, or cement price recovery stalls, industry profits could face downward pressure. Overall, 2026 industry profits are expected to remain at relatively low levels.

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