Cement market shows sign of a tense competition

Cement market in Vietnam is in for a tense competition.

In the context when cement has showed signs of excess, to survive and grow, cement producers should take cautious steps to adapt and overcome those critical challenges.

According to Ministry of Construction, cement production of the entire industry in 2010 reached 50.85 million tonnes, about two million tonnes in excess compared to demand. Meanwhile, 12 additional cement rotary kilns have just been completed and gone into production with total design capacity of 12 million tonnes per year. As forecast, in 2011, about seven cement projects would be put into operation, and the surplus would increase by five to 10 million tonnes, depending on various factors. In 2008, coal price rose more than twice. Price of electricity, fuel, and labour also increased, but selling price of cement in the market has not increased significantly. According to Le Van Toi, Head of the Department of Building Materials (Ministry of Construction), for three years, cement price has just risen by about 13 to 15 percent, depending on particular region and factory. This is a major effort of cement producers in general and the Vietnam Cement Industry Corporation (VICEM) in particular, in rationalising production and distribution in the current conditions.

Chair of the Board members of VICEM Le Van Chung said that before the significant price increase of material inputs such as electricity and coal in the recent time, it is likely that a number of outdated vertical cement kilns in the process of transforming to rotary kilns would face various difficulties. The competitive pressure, thus, might decline slightly but cement companies should not be subjective. As predicted, the volume of cement would still increase high, and be unevenly distributed, especially the competition would focus on the north (supply excesses demand by about 10 million tonnes per year), and so the cement competition would still be complicated. Moreover, since cement projects are often invested in foreign currencies, after the financial crisis, bank interest rates increased, plus inflation issue, recovering capital, and repaying debts would be great challenges. For VICEM, with seven projects put into production, in 2011, it is expected to pay debts of about 3.2 trillion dong, equivalent to an investment for a new large cement factory. Currently, some projects are unable to repay debts, and they might be merged. In addition, some cement factories have been in long time suspension for maintenance or been reduced capacity to maintain operation, because in 2010, power and coal supply for cement production faced many difficulties, especially in the peak construction season, affecting the production of various units. This situation would hardly be improved in 2011.

To stabilise the cement market before the coming fierce competition, Ministry of Construction has focused on demand stimulus through different options, such as using cement for traffic works in rural areas and inland canals; reviewing demand and supply of ceramic tiles, and reviewing exports and imports. In particular, non-calcined material programme has achieved positive results. Currently, Vietnam has about 20 lines manufacturing Autoclaved Aerated Concrete (AAC) with capacity of 100,000 to 200,000 cubic metres per year, and over 40 lines manufacturing Cellular Lightweight Concrete – CLC with capacity of 40 cubic metres per shift. These are environmentally friendly products. A good sign in 2010 was that clinker imports have been reduced. Imports of clinker in 2010 were 2.1 million tonnes, equivalent to 60 percent over 2009, of that, import volume in the second half of 2010 accounted for only one-third of the whole year figure.

To reduce pressure on domestic competition, many firms have actively been seeking export markets and have exported about 1.2 million tonnes. Although this number is not large, it is the premise and experience for the following years. Compared to consumer goods such as garment and textiles, footwear, seafood, etc., exporting cement is not easy since the product is bulky, perishable with high transportation costs and low profits. To export successfully, cement companies should carefully conduct research on the market, flexibly adjust mechanism from manufacturing, distribution to transportation and consumption; and should actively search for new markets in addition to the familiar markets such as Laos and Cambodia. In 2010, Cam Pha Cement Joint Stock Company (under the Vietnam Construction and Import – Export Joint Stock Corporation – Vinaconex) succeeded in exporting the second cement batch to Middle East market.
Previously, the first batch of cement was exported to Africa in March 2009. Vinakansai Cement (Ninh Binh) also exported nearly 100,000 tonnes of clinker to Singaporean market and 70,000 tonnes of clinker to India, and signed a contract for exporting 1.2 million tonnes to Bangladesh (100,000 tonnes per month), starting from September 2010.

The business results of companies in cement industry depend on various factors of the market and strict management and administration of the government. However, before the fact that there would certainly be a fierce competition, cement companies should actively take appropriate and flexible measures, depending on market performance. Chung from VICEM said that the top priority of VICEM in the next year is to operate efficiently on all aspects of works, from manufacturing, distributing, consuming to financial works, and recovering debts, etc. In 2011, the corporation would complete manufacturing and consuming of 19 million tonnes of cement in a most effective way. It would not attach too much attention to the issue of revenue, but would gradually improve productivity, reduce fuel consumption and costs to cut production costs, maintain regulator role in the cement market. – Nhandan

Tags: Vietnam cement, Vietnam cement industry

Posted by VBN on Feb 11 2011. Filed under Cement. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry