How soon can Vietnam's cement sector emerge from its crisis?

How soon can Vietnam's cement sector emerge from its crisis?
19 April 2024

This week the Vietnam National Cement Association (VNCA) wrote to the country's Prime Minister with proposals to relieve the build-up of inventory at plants that are running at low utilisation levels, or having to shut down due to falling cement demand.

In 2023 Vietnam's 61 cement plants saw production decline to 87.8Mt, with 31.2Mt (35.5 per cent) of this being exported. This marked a 16 per cent YoY drop in output, causing many plants to halt production for six months, or remain idle for most of the year.

"This slowdown is squeezing the cement industry, raising the risk of bankruptcies and fire sales to foreign firms," the association said.

The solutions to be put to the Prime Minister include demand side stimulus to the construction sector. For example, the addition of causeways in highway development projects, especially in areas prone to flooding like the Central Highlands and the Mekong Delta.

Export concerns
Measures to relieve exports were also put forward. The reduction or complete abolition of clinker export duties was recommended, while banks should be instructed to restructure debts and lower interest rates for cement producers.

Meanwhile, as the Philippines continues to impose temporary anti-dumping measures on Vietnam's clinker exports, exports are shifting to more distant markets such as the USA. Nghi Son Cement Corp exported its first batch of 31,500t of cement to the US in May 2023.

The loss of the Philippines market is considerable, as it accounted for 27 per cent of Vietnam’s export turnover. However, Bangladesh and Malaysia remain valuable markets, with 17 and 5.2 per cent of Vietnam’s export sales, respectively.

Slight uptick expected in 2Q24
Vietnam’s cement industry reported a shaky start to 2024. Sales were down seven per cent YoY in the 2M24, with heavy rainfall in January and the Tet holiday subduing demand. However, the economy expanded 5.7 per cent YoY in the 1Q24, with the construction sector growing 6.8 per cent, up from 1.9 per cent the 1Q23. GDP growth is forecast to accelerate to 5.8 per cent YoY for 2024, up from five per cent in 2023, according to the IMF.

Housing investment
Meanwhile, the housing market could start a resurgence in cement demand. Foreign investors are cashing in on seeing villa prices 20 per cent lower than their previous peak. Vietnam also changed its Land Law at the start of this year to assist overseas Vietnamese citizens in buying properties in the country. These law changes will come into effect in 2025.

Other positive trends have been noted. Real estate consultancy Savills stated in its 3Q23 market report that “infrastructure development will underpin future residential development,” while real estate consultancy CBRE expects, “stabilising interest rates and upcoming amendments to policy” to promote recovery in the Hanoi and Ho Chi Minh City residential property markets in 2024.

Infrastructure stimulus ahead
Public investment is expected to be a key driver of growth and could bolster cement sales in 2024. The government has allocated VNÐ657trn (US$26.8bn) for public investment this year, much of which targeting transport infrastructure projects, including the Long Thành International Airport Project, The T3 Passenger Terminal Package at Tân Son Nhat International Airport and accelerating the five projects in the East-West Expressway.

The cement sector is understandably pleading its case to the Prime Minister, who has the purse strings to ease the pressure on low cement utilisation rates. While policy reform is expected to boost housing demand, the major saviour for the sector will be the announcement of state construction projects. Ultimately, however, the long-term outlook for the sector will depend on the government's strategy for the cement industry, and whether it wishes to continue support for low value-added commodity exports, or continue to apply the disincentive of export taxes.

Published under Cement News