Which way for cement industry to develop?

In 2010, the excess volume of cement is estimated to amount to four or five million tonnes. The number will continue to grow in the following years as new projects come into full capacity. Exporting cement is a solution, but it does not seem very feasible since many enterprises complain of taking a loss even to transport clinker just from the North to the South. How can export be profitable while transportation fees are so high? Cement enterprises are under great pressure from the market, a certain consequence of mass licensing for cement projects in Northern provinces.

Oversupplied by 4.5 – 5 million tonnes in 2011

Cement is a unique industry in which the factory has to be close to material areas. Cement industry development should be accompanied by specific regional planning, based on consumption demand as well as the actual conditions of each locality. The massive licensing for cement projects is resulting in overproduction of cement.

According to the Building Material Management Department (under the Ministry of Construction), cement enterprises plan to produce 53 – 54 million tonnes of cement in 2010. Meanwhile, consumption remains around 50 million tonnes. As such, the excess will amount to 3 – 4 million tonnes in 2010. If there is no improvement in the situation, that amount will be around 4.5 -5 million tonnes in 2011 and 8 million tonnes by 2012.

When the economy is market-driven, oversupply will cause competition among enterprises and consumers will benefit from such competition. It is necessary that enterprises be more active and creative in their production activities so that their products can have a firm standing. However, to let the cement industry develop as it is now is not scientific at all. The mindset of “excess is better than shortage” has been stuck in mind of a number of managers, which leads to the uncontrolled granting of certificates for new cement projects. A related problem is cement industry investor’s ambiguity concerning the number of projects being granted investment certificates. The current overproduction of cement is a consequence of spontaneous, unplanned decision making, not conforming to supply – demand rule at all.

In the past few decades, Vietnam suffered from a shortage of cement and had to import clinker from Thailand and China for cement production. Making a master plan for developing the cement industry is really a strategic task. In fact, projected demand figures under cement industry planning are fairly accurate. If investment and construction projects conformed to the plan, sustainable market development would be likely. Unfortunately, due to loose management, too many cement projects have been granted with investment certificates, far exceeding the targeted number.

The Ministry of Construction’s development plan for Vietnam’s cement industry shows that total capacity of factories producing cement is 61 million tonnes per annum in 2010, let alone dozens of projects waiting approval. Meanwhile, the demand in this period is estimated to range between 40 and 45 million tonnes per annum.

Seeking more markets?

Facing the increasing cement excess, the Ministry of Construction has taken a series of actions to tackle these difficulties. Besides proposing the Government direct localities to stop licensing new projects, the Ministry also requests enterprises, especially joint stock companies including Nghi Son, Chinfon Hai Phong and Phuc Son, to quickly seek export markets. Specifically, in the last six months of 2010, each company is supposed to export 100,000 – 150,000 tonnes of cement. However, exporting cement is not effective, so the fact that quite a few cement companies do not take an interest is easy to understand.

Seeking foreign markets for cement is just a situational solution. Where to export and at what price remain unanswered. High transportation cost is a formidable barrier. According to an expert, a cement factory can have effective business only with a consumption radius of some 300 km. However, in neighbouring markets such as Lao and Cambodia, demand is not significant. If any, they will import cement from Thailand and China whose prices are cheaper than Vietnam. Large markets such as Europe or America have long been traditional markets of Thailand. It is difficult for Vietnam’s cement to enter such markets. If export is desired, Vietnam has to resort to farther markets like Africa or Brazil. However, transportation will be costly and loss is inevitable.

Directors of cement companies, including Hoang Thach, Bim Son and But Son all affirm that exporting cement is not effective. If the proper conditions are not maintained, this product will degenerate, let alone the fact that production cost is escalating due to increases in the price of electricity and coal.

Pressure caused by overproduction is leading to unhealthy competition among cement enterprises. Due to excessive supply and increasing stock, a number of enterprises have reduced prices to lower than market price. They accept breakeven price, or even loss, in order to claim back capital and settle debts. The prices quoted below market level of some enterprises have even left customers doubting the quality.

Solving the question of supply and demand is a major concern for most cement enterprises now. Without timely intervention of managers at different levels, this issue will remain the preoccupation of Vietnam’s cement industry.

Tags: Vietnam cement, Vietnam cement industry