Vietnam Cement Report 2015

LONDON, April 20, 2016 /PRNewswire/ -- Vietnam cement market continued to oversupply with the the using rate of 64% in 2015, excluding exports volume. In Vietnam, cement consumption reached 55.5m tons, rising 9.2% compared to the same period last year. Particularly, the export volume reached 17m tons. However, large cement plants are under construction and expected to raise the total capacity to 15.7MTPY in the next two years. Overall, Vietnam will encounter the oversupply in the coming years but the situation will be more complex and vary by regions.

The overview of cement demand can change significantly based on the development of infrastructure projects and real estate cycles. Vietnam is a developing country and still lacks all types of infrastructure, including both hardware and software.

There are 292 expected projects until 2030, with the total value of US$283m. However, the condition of the infrastructure project is very uncertain and depends on the availability of funding. Moreover, the budget deficit still remains at high level in 2014. In addition, the lack of a suitable roadmap also causes difficulties building planned infrastructure.

The quality of cement is determined by two main factors including the raw materials –limestone and technology & equipment. Limestone used as raw material to manufacture portland cement have to satisfy the requirements of quality content. Therefore, MgO and CaO content in limestone plays an important role in deciding the quality of clinker and cement. This depends on the quality of limestone in each region and human cannot intervene to improve the limestone quality. In term of technology, manufacturing enterprises use rotary kiln dry method with two major equipment lines derived from the G7 countries and China. The choice of technology poses hard problems for the cement enterprises in general. Hence, Cement plants with the capacity of more than 2m tons of cement per year, huge amount of capital investment, awareness of brand building, having plans to expand in the long term, high requirements on quality and stabilizing output should consider G7 equipment.

In addition to investment costs, raw materials are as important as machinery in ensuring the quality of cement. Although people can intervene to improve cement quality via adjusting the machinery mode, they cannot improve the quality of limestone and clay. Hence, raw materials have greater impacts on the quality of the cement and clinker than machinery do.

Logistics is still a weak point of Vietnam cement enterprises. Thus, stations cannot handle vessels (20,000 tons or more). As a result, production cost of cement in the South usually is VND400,000 / ton higher than that in the North. In addition, Vietnam cement enterprises has export with FOB contracts, causing the loss of competitive advantage compared to other regional countries such as Thailand and China.

Until 2014, approximately 10% of total cement consumption was distributed directly to retailers. This figure is expected to increase and set the trend for the coming years, with the promotion of pioneer of direct sales such as LafargeHolcim and TopCement.

There are 3 groups of cement suppliers in Vietnam. The first is group of companies under VICEM, accounting for 27% of total cement capacity of Vietnam. The second is foreign cement companies. And group of locally private companies with large-scale. Besides, there are many other small cement companies in regions. In total, they account for the largest portion of cement capacity (41%).

Cement prices are lowest in the North, and highest in the South (due to transportation cost of clinker from the North to the South). Moreover, the domestic cement price has been on an upward trend due to the increase in cost of raw materials and fuels (such as coal and electricity). The average price was at US$60 in the North, USS67 in the Central and US$78 in the South. Vietnam's cement price is still lower than that of other countries in the region due to the oversupply and lack of planning of the government,

Production costs: Vietnam cement enterprises mostly use non-renewable fuels. Therefore, production costs are expected to be on upward trend, leading to low efficiency and performance of Vietnam Cement industry.

Competition within the industry: As large cement enterprises are jointly acquiring market, small businesses are forced to either go bankrupt or merge due to insufficient competitiveness.
In addtion, Vietnam cement enterprises are beginning to use renewable energy in order to save costs. However, only Holcim Hon Chong (Kien Giang), Ha Tien 1 (formerly known as Ha Tien 2), Cong Thanh Cement and Chinfon have so far invested in this technology, helping them reduce a large amount of energy (such as coal-non-renewable fuel) and CO? emissions, according to VNCA. As required by law, WHRPG will be built by other cement companies in Vietnam in the coming years if supported.

The business situation of Cement industry has positive changes compared to that of 2013 with the increase in net profit margin due to the increase in revenue and falling in interest expense.
Among the 10 typical enterprises, Vissai Group and Quang Ninh Construction and Cement Company were overheating enterprises because their long-term debt is greater than the whole industry; net profit, inventory turnover and liquidity was low.

For the group of enterprises with sustainable development, including Nghi Son, Hoang Thach, Chinfon, their long-term debt accounted for a small proportion of the total debt and the ratio of debt/equity is lower than indutry's ratio; a large net profit and good liquidity which are better than another group.



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