Vietnam's cement woes: surging supply but no demand

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Many cement firms are deeply in the red after demand has plummeted due to the housing market slump while supply has soared because of the indiscriminate construction of several plants.

Le Van Toi, head of the Ministry of Construction's Construction Material Department, said: "Sales of many kinds of construction materials, including cement, have fallen sharply in recent months due to the stagnant real estate market sparked by the economic recession and tight credit policy."

According to the ministry, cement producers sold nearly 31.7 million tons in the eight months through August, down 1.8 percent from the same period last year.

The general director of the Vietnam Cement Industry Corporation, Nguyen Ngoc Anh, said cement producers faced financial difficulties since costs had risen but they were unable to increase prices in a depressed market.

Gasoline prices had increased by 30 percent this year, and electricity and coal costs by over 15 percent and 41 percent, he said.

His corporation has suffered a loss of VND7.8 billion (US$371.000) since the beginning of the year, he said.

By far the largest player in the industry with a 40 percent market share has achieved just 70 percent of its sales target this year with 14.5 million tons. Some of its subsidiaries have cut their sales target by 10-20 percent.

Dong Banh Cement Company based in Lang Son Province suffered a loss of VND141 billion ($6.7 million) after only one year of operation. It is now finding it hard to even repay the loans it took to build the factory.

High interest rates had also dealt a big blow to cement firms, an industry insider said. "In the current context, it is impossible for cement producers to earn enough to pay interest, let alone to make profits. Most of them are paying interest rates of more than 20 percent."

The situation was even worse for plants under construction because banks were uninterested in lending to them due to their own liquidity problems, he said.

New plants

Another major cause of the difficulties plaguing the industry is the supply overhang caused

by indiscriminately building factories. The country's 20-year industry development plan envisaged building 53 cement plants between 2005 and 2010. 

Nguyen Van Thien, chairman of the Vietnam Cement Association, said there are actually more than 100 plants with a combined capacity of nearly 70 million tons. Demand this year is estimated at only 50 million tons.

Vietnam was boosting exports to deal with the problem, but it is a difficult task, he said. It has shipped just 400,000 tons this year, mainly to Laos and Africa.

Vietnam lacked the necessary maritime infrastructure such as deepwater ports and large ships to move the cement, Thien said.

Besides, Vietnamese firms are having a tough time breaking into Asian cement markets because of competition from major exporters like China and Thailand.

They could only hope to tap distant markets like Africa and Brazil, but export prices were not high enough to cover shipping costs, let alone generate profits, Thien said.

The government should increase domestic cement consumption, he said, pointing out that if the use of cement in road construction was increased, the industry's troubles would be resolved.

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