Vietnam's cement sector has come under pressure from falling consumption, particularly in its key export markets. Exports of clinker and cement amounted to 24.7Mt in the first 9M22, down 25 per cent in volume and 14 per cent in value YoY, according to the Department of Building Materials (DBM) under the Ministry of Construction.
The reasons for the decline in exports, which amounted to 46Mt in 2021, are evident. The two main receivers of Vietnam clinker and cement have reduced their import levels significantly. China's demand has been impacted by its strict pandemic policy and the Philippines has witnessed soaring logistics costs while also imposing a five-year anti-dumping ban.
While Vietnam's total cement production reached 73Mt in the first nine months of 2022, this was down 10 per cent YoY. A total of 47Mt of cement were sold in the domestic market, up five per cent. However, September's domestic cement consumption slipped to 7.6Mt, 1.26Mt lower than in August and 15 per cent down YoY, according to the DBM. September's figures also show that 5.4Mt of cement reached the domestic market and 2.2Mt were exported.
Losing competitiveness
There is abundant cement capacity in the country and factories are expected to have to lower their capacity utilisation. Nguyen Quang Cung, chairman of the Vietnam National Cement Association (VNCA), said "The cement sector's designed capacity now reaches 107Mta, and can be complemented by more than 20Mt leveraging tech and through revising the additive ratio." While some observers had expected Vietnam’s cement sector to exceed 70Mta of production by 2022, it has not averaged more than 60-65Mta of production in the past five years.
Cement producer inventories, mainly in the form of clinker, have risen from 15-20 days up to 25-30 days or to nearly 6Mta of product this year. While demand for cement is not as strong as it was at the start of the year, production costs have also begun to impact cement producters. Vicem's General Group Director observed, “In addition, a spike in the production cost due to soaring coal, gypsum and fuel prices from late 2021 has dampened Vicem's business efficiency.”
Vietnamese cement producers have been inclined to move away from coal usage as prices have risen eight-fold in some cases. The government expects alternative fuel usage to rise to 15 per cent by 2030 and by 30 per cent after that, according to Associate Professor Luong Duc Long, VNCA deputy president. Licenses issued by the Vietnam Environment Administration include coprocessing approvals for Hon Chong cement plant, Thanh Cong Group JSC, Nghi Son Cement and VICEM Ha Tien Cement JSC. Further legislation is required to higher levels of waste treatment in cement pants as there are currently no supporting mechanisms or policies to incentivise the industry.
Industry consolidation
The downturn in profits has had a predictable outcome. Acquisitions and consolidation is becoming the norm. Siam City Cement PCL bought Holcim Vietnam Cement, which was later changed into INSEE, while SCG Group has acquired Buu Long Cement and Song Giang Cement. In addition, Malaysia's YTL Group now owns Fico Cement. However, the domestic cement producers can be encouraged by the expansion of local manufacturers such as Tan Thang Cement, Vissai Group and Xuan Thanh Cement.
Reasons for optimism
Optimism is likely to return to Vietnam's cement producers because the country still has a low urbanisation rate at less than 34 per cent at the end of 2021, according to The Global Cement Report. Domestic cement consumption has not reached its peak and cement capacities are already in place to take up any upsurge in demand.
However, in the short term, the upturn is not expected to be felt by local players until 2023, according to Vietnam Credit. High raw material and fuel prices have compounded production costs, adding to the concerns over export markets. Northern Vietnam has a vast amount of cement surplus and is more dependent on exports than the south of the country. However, even companies such as Ha Tien 1 Cement JSC situated in the south has seen its profits drop by 74 per cent in the 2Q22, its lowest result since the 1Q18, according to Vietnam Credit.