Vietnam tasting another bitter lesson in cement industry development

Four out of the 16 cement plant projects, which were guaranteed by the government when borrowing capital from foreign sources, have entreated help of the Ministry of Finance to pay due debts. The blunders made by Vietnam in the past when building blast furnace cement plants are repeating.

In 2010, China “declared the death” of 300 million tons worth of cement production capacity, mostly reverter furnace plants with the capacity of one million tons per year. The noteworthy thing is that the backward technologies given up by Chinese producers have been imported to Vietnam in a massive scale in the last 5-6 years.

According to an expert, it is estimated that 60-70 percent of reverter furnace cement plants in Vietnam are using Chinese technologies and equipment.

In 1990s, Vietnam once had to pay a heavy price for the development of blast furnace cement plants. Just within 7-8 years, 50 Chinese blast furnace cement production lines were imported to Vietnam, which were then forced to death by the government just several years later because of the backward technologies, which gobbled much energy and caused environmental pollution.

However, it seems that Vietnam has not drawn lessons from the “blast furnace cement plant” movement. After the blast furnaces shut down, localities began building reverter blast furnace cement plants, also with the Chinese backward technologies.

Chinese technologies have been preferred by Vietnamese enterprises because they are dirt cheap. Besides, it is easy to purchase equipment from Chinese suppliers, while it is more difficult to purchase equipments from European companies which only make products to orders.

In 2004-2005, when the cement market was “scorching hot” with the demand always higher than the supply, Chinese production lines, which allowed to make products soon and had low prices, was the choice of most of Vietnamese investors.

However, the massive investment has quickly made the cement market become oversupplied. Just within seven years, the design capacity of the cement industry increased by three times, while the demand increased by two folds only.

Cement plants competing to die

Cement producers complain that they are meeting too many difficulties: the demand has dropped dramatically as a result of the policy on cutting public investments to fight against inflation.

However, analysts have pointed out that in fact, the problem of cement plants has existed for the last several years already. In order to compete with rivals in the context of overproduction, cement producers have to lower the sale prices to attract more buyers. In many cases, they accept to sell products at the prices lower than the production costs. The venturesome competition method has led to the fact that many companies have fallen into insolvency.

The analysts have also pointed out that in the competition, there is no winner, but all the rivals in the competition would have to die. If not counting on the price increases because of the inflation, the current cement prices would be even lower than the prices in 2003-2004, even though the input costs have increased by two or three times.

The lack of the harmonization between the cement production and infrastructure development has also been cited as a reason which has pushed cement manufacturers into big difficulties. Most cement plants are located in the north to be close to material areas.

Meanwhile, it is very costly to carry cement from the north to the south, when the demand is always very high, due to the bad infrastructure conditions, which makes the transportation costs high.

Meanwhile, Vietnam still does not have ports for cement and clinker. In order to carry cement to the south, it is necessary to carry cement on trucks from Ha Nam, Ninh Binh and Thanh Hoa, the land of most cement plants, to the nearby rivers, when the products will be loaded into barges to be carried back to the Cua Dua port in Quang Ninh province. There at Cua Dua, cement will be loaded into big ships to be carried to the south.

With the way of transport, it costs about 700-800,000 dong to carry one ton of cement to the south, or 40-45 percent of the retail prices.

This explains why the cement plants, which are in the high risks of getting bankrupted, are the ones located in the north of the central region, Ha Nam and Ninh Binh.

Source: TBKTSG

Tags: Vietnam cement industry, Vietnam cement sector