Southeast Asia is becoming a difficult market for cement producers to make a profit. Surging production costs, sluggish consumption, and reduced prospects at home and abroad stifled any chance of high margins in the 1H23. Meanwhile, export markets are becoming more restricted. On top of China's reduction of imports, Australia has started to review the possibility of a cross-border adjustment mechanism (CBAM) implementation following Europe's lead to protect against carbon leakage.

Domestic decline and rising costs
Out of 12 Vietnamese cement producers, just two managed to post profits for the 2Q23, according to Vietnam Investment Review. The  state-owned conglomerate Vietnam Cement Industry Corp (Vicem) and its Ha Tien plant that saw a 16 per cent drop in its consolidated revenue, falling US$84.3m (US$2.5m) in consolidated post-tax profit, down nearly 57 per cent YoY. The company incurred losses US$1.13m in the 1H23 compared to profits of more than US$7m in the 1H22. 

But Son, another Vicem subsidiary, accumulated US$56.65m in net revenue for the 1H23, representing a 12 per cent YoY drop, amounting to losses of US$1.35m compared to profits of US$2m a year ago. Bim Son Cement similarly posted US$73.4m in 1H23 revenue, which was down 25 per cent on 1H22, equal to a loss of US$2.2m on the US$5.5m profits of 1H22.

The growing surplus of domestic cement in Vietnam has led to a decline in cement prices. Last year cement prices rose from VND60,000/bag to VND80,000/bag (US$2.50/bag-3.34/bag) on the back of rising coal prices. Now cement producers are also facing a three per cent hike in electricity prices which already account for 9-15 per cent of the costs of the goods sold, says Fiin Group. 

Moreover, FiinGroup adds that four new Vietnamese cement plants came on-stream in 2022, posting an increase of 9.3Mt in clinker production capacity and 4.6Mta of cement capacity. The average capacity utilisation subsequently level fell from 85 per cent in 2021 to 66 per cent in 2022, claims Fiin Group.

Ngo Duc Luu, Vicem Hoang Mai’s deputy general director, points out that the cement market is facing a serious oversupply, with the designed capacity of approximately 130Mt far outstripping the mere 65Mt of domestic demand. Exports have been supporting utilisation rates, but cannot be relied upon indefinitely.

The role of China
Much of the decline in profits can be attributed to China's slump in real estate growth and its subsequent lack of imports. Vietnam's cement exporters have had to look at more distant markets such as South America and Bangladesh since 2022, after China's import reduction. In May a 31,500t consignment of cement from Nghi Son Cement Corp was sent from the Thanh Hoa plant to the distant US market to ensure a return for the commodity.

In November 2022 Vicem also welcomed a 6Mt shipment deal for cement to be exported to the Philippines between 2023-25, where construction of major infrastructure continues to prop cement demand levels up. However, in December 2022 the Department for Trade and Industry (DTI) imposed antidumping duties on two types of Vietnam imported cements for five years.

With China and the Philippines closing their doors to further cheap imports, it is not surprising that Bangladesh and the US have become vital lifelines for Vietnam's cement producers.

Restricted trade routes
This week, Australia's federal government also said it would start to consider whether it should follow Europe's lead and start imposing stricter tariffs on cement and clinker imports to protects its own industry. This could well hit cement producers in southeast Asia that currently have less strict climate emission standards. 

Chris Brown, Australia's climate and energy minister, said his department would begin two rounds of consultation over the adoption of a cross-border adjustment mechanism (CBAM). "Everybody understands, including in my discussions with industry, that this is a big and complicated process which can't be rushed," Bowen said. "The EU gives us a model, and we’ll look at it closely in the Australia context."

What next?
Like Indonesia’s cement market, which we featured last week, Vietnam faces the dual challenge of overcapacity and low or declining domestic cement demand. With overseas options also contracting, producers are left to reduce utilisation levels. This will see pressure mount on weaker players and offer larger companies and those with greater financial flexibility a chance to consolidate the market. Moreover, for those producers who wish to continue exporting in the medium-to-long term, matching the environmental and carbon emissions standards of their export markets will be critical, or they will risk being shut out.

Published under Cement News