In 1997 the Prime Minister approved the “Master Plan for the Development of the Cement Sector by 2010”. But since 2002, due to greater national industrialisation and modernisation, the master plan has been reviewed and adjusted four times.

According to the latest figures from the Ministry of Construction (MoC), as at June last year Vietnam had 108 cement production lines in operation with total designed capacity of 65 million tons per year, or double production levels in just four years. 

In 2010, total cement production in Vietnam reached 53-54 million tons, or approximately 2 million tons higher than demand. This year cement output is expected to exceed demand by 8 million tons, and in 2012 the figure is likely to jump to as much as 15 million tons. There is understandable concern that Vietnam’s cement market is falling into a situation where supply will continue to far exceed demand due to poor forecasting, creating many difficulties for cement enterprises.

But Deputy Minister of Construction Nguyen Tran Nam thinks differently. In 2007, he pointed out, Vietnam’s cement industry saw supply at some 10 million tons less than demand, and some 9 million tons had to be imported to meet domestic consumption needs. Only in 2009 did domestic output fully meet demand, and part of this output was set aside for export.

In 2010, cement for export was estimated at 1 million tons, while cement imports were around 2 million tons. This, he said, runs counter to claims of a cement glut. “Raw materials for the cement industry are mostly located in the north of the country, while 50 per cent of consumption is in the south,” he said. “The difference in consumption seasons between the two regions leads to a situation where there are times that Vietnam faces a cement glut but then faces a shortage at other times.

The total inventory of cement is only equal to about ten days of output. This 10 per cent excess will be shipped to the southern market from northern provinces.”

Meanwhile, some affiliate companies of the Vietnam Cement Industry Corporation (VICEM) are not happy with the situation and have complained that they are on the verge of bankruptcy because of their large inventories and the high interest rates they must pay on bank loans. 

In addition to falling market share, the profits of VICEM affiliates are also falling significantly. In the first six months of this year VICEM profits met just 25 per cent of targets. Meanwhile, VICEM affiliates are currently under significant pressure to settle their debts. The Tam Diep Cement Company has to repay VND370 billion ($18.5 million), while Ha Tien must find $19.3 million. Hai Phong Cement Company, meanwhile, owes $11 million, and Bim Son Cement $7 million.

According to Mr Le Van Toi, a senior MoC official, cement output in the first seven months of this year is estimated at 31 million tons, while consumption was just under 28 million tons. This was simply because of decisions to delay or reschedule the construction of a number of projects. Cement consumption in 2011 is predicted to reach around 50 million to 51 million tons, or 4 million tons lower than last year. “Production costs are a touch too high and the price of material inputs rose by double digits this year, for example coal by 41 per cent, power by 15 per cent and packaging by 25 per cent,” said VICEM Chairman Le Van Chung. “We are now just trying to survive.”

He added that with such difficulties added to interest rates of 21 to 22 per cent, many VICEM affiliates will find it difficult to access bank credit and must try to find new markets for their cement inventories. To overcome the difficulties facing the industry, the Ministry of Finance has decided to cancel the proposed 5 per cent tax on cement exports.

MoC has proposed a number of measures to address excess in supply in the coming years, including (i) pushing up demand by using cement in transport and irrigation works, as well as in projects building rural roads and national highways (which is now under discussion with the Ministry of Transport); (ii) ceasing the construction of some cement projects previously set under the Master Plan but where implementation has been slow or where output is low or operations ineffective; and (iii) promoting cement exports, mostly clinker. MoC is now in discussions with VICEM regarding the third point.

VICEM is now in negotiations with export partners in traditional markets such as Cambodia, Laos, China, and the Middle East. Cement exports are to be pushed up by the end of the year, with a target of 1 million tons having been set. Enterprises have signed export contracts totalling tens of thousands of tons. Thang Long Cement Company has been very successful in entering the African market, and also plans to export about 500,000 tons in 2011 to other markets such as Singapore, Brunei, the US and the Middle East. Laos is also seen as a market of great potential, since the six Lao cement plants have failed to meet demand, which is increasing at about 20 per cent per year.

In 2011 Vietnam’s total cement production is estimated at 60 million tons, while domestic demand will only be 55-56 million tons, making exports a must. Some cement enterprises have begun to export but turnover remains modest. The African market in general and the West African market in particular is regarded as having significant potential for Vietnam’s cement exports.

Vietnamese-made cement is already available in a number of Asian markets. VICEM has recently conducted a careful survey of Myanmar’s cement market, which showed tremendous demand for cement imports as local production only meets half of demand. It has been sourcing cement from Thailand, Malaysia and China for many years.

China also has potential, as it consumes half of the global supply. India, meanwhile, is the second largest market in the world. And demand is increasing remarkably in a number of countries in the Asia Pacific region. But to enter these markets, Vietnamese cement faces fierce competition in terms of quality, price, technology, environmental concerns, and especially the capacity to supply large volumes within a short period of time.  

Mr Ngo Minh Lang, Director General of the Ha Tien Cement Company Number 1, said that each year Taiwan produces 23 million tons of cement but domestic consumption is only 8 million tons. Many cement enterprises in Europe face a similar situation. Therefore, any market with demand for cement imports, such as Singapore, becomes a severely competitive market for cement exporters.

As a result, Singapore has the lowest cement price in Southeast Asia. Mr Nguyen Sy Ngoc, Director General of the Tam Diep Cement Company, said most of its products were sold domestically because it is difficult to break into new foreign markets due to export prices being even lower that the domestic price.

Mr Le Van Toi, Director of MoC’s Department of Construction Materials, looks at cement exports from another perspective. He said that encouraging enterprises to actively seek foreign markets is only a quick fix to supply exceeding demand. “I think that we should not set a target of producing cement for export,” he said. “Exporting cement is only seen as a measure to regulate supply and demand in the domestic market.”