Vietnam cement market would reach an equilibrium by 2026 in our base case forecasting.

Vietnam has experienced a surplus of cement since 2009, and the situation has become more serious since 2011. Yet, the Master Plan developed in 2011 was meant to increase the number of cement plants from now until 2020. We have carefully reviewed the status of such expansion / new development of cement plants to analyze the supply of Vietnam cement.

Under our base case, which is a prudent scenario based on analysis of macroeconomics and cement demand factors such as the status of infrastructure development and residential sector, we forecast a 5% annual demand growth for cement until 2030. The result is that Vietnam in general will continue the surplus until 2026.

It is important to note that the scenario may be different if the source of funding issue is resolved by the Government and a number of mega construction projects would be taken.

However, clinker capacity is still having a significant shortage in the South

Overall, Vietnam will continue the supply surplus in the coming years, but looking closer, the situation is more complicated and varies by region.

In fact, the North and the Central will continue the supply surplus. Demand in the North, at 3% annual growth, will still be lower than the supply by 2030. In the Central, even at the quickest demand growth of 7%, cement equilibrium would not be achieved until 2028.

Meanwhile, the South will continue to have a shortage of clinker, which is supplied from the North and Central. The clinker shortage in the South will get worse and widen until 2020, as there are no cement plant projects in the South until 2020.

Latest sector performance: In 2013, cement domestic consumption had a slight increase of 2%, or 46 million tons last year, but it was still unable to get back to the same growth level as in 2000-2010. Consumption in the North continued to decline -1% in 2013, after a sharp decline of -11.4% in 2012. The Central, after a few years of rapid consumption growth, fell quickly in 2012 and increased only 5% in 2013. Vietnam has experienced a surplus of cement since 2009, and the situation has become more serious since 2011. Yet, the Master Plan developed in 2011 was meant to increase the number of cement plants from 2014 until 2020. According to StoxPlus’ analysis and forecast, even if Vietnam would not implement fully the Master Plan, Vietnam cement market would still continue the supply surplus situation until 2026.

Regional variations: Despite the surplus situation for the country as a whole, clinker capacity is still experiencing a significant shortage in the South. Overall, Vietnam will continue the supply surplus in the coming years, but looking closer, the situation is more complicated and varies by region. In fact, the North and the Central will continue the supply surplus. Demand in the North, at 3% annual growth, will still be lower than the supply by 2030. In the Central, even at the quickest demand growth of 7%, cement equilibrium would not be achieved until 2028.

Cement demand landscape can change significantly based on the implementation of infrastructure projects. However, the status of those projects is very uncertain: Cement demand landscape can change significantly based on the implementation of infrastructure projects. However, the status of those projects is very uncertain. Vietnam is a developing country and still short of all types of infrastructure, both the hard and the soft infrastructure. According to our database, there are 243 projects planned until 2030, with total investment value of US$221bn. However, the status of these infrastructure projects is very uncertain with long lasting delays, depending on the availability of funding.

Price is in uptrend: Cement is no longer included in the price basket for CPI index calculation but it is subject to the so called “Price Declaration Program” of the Government. Cement price is lowest in the North, and highest in the South (due to freight and transportation cost of clinker from the North to the South). Moreover, domestic cement price has been on an upward trend due to rising cost of raw materials and energy (coal and electricity). The average price is US$57 in the North, US$63 in the Central, and US$73 in the South.

Vietnam cement price is still lower than in neighboring countries due to supply surplus and lack of planning from the Government, leading to price dumping.

Waste Heat Recovery as additional compliance cost for energy efficiency production: The Government imposed very strict conditions for new cement license in terms of capacity size, technical performance and financial capability. To cope with soaring energy costs, the policy also requires that by 2015 all plants must apply the Waste Heat Recovery Power Generation (“WHRPG”) to meet at least 20% of its electricity consumption. Other cement-related regulations include the restructuring of the Master Plan and the Government loan guarantee scheme. By early 2014, the Government has decided to delay 9 out of 16 cement factories planned to be built by 2015 until after 2015. 24 other projects planned for the period of 2016-2020 is also under a very uncertain status. Also, the Government recently decided to stop providing guarantee for cement loans.

Costing and Financial performance – still low EBITDA versus regional peers: In our cement report, we analyzed in detail cost of production of a cement player in the Central. The cost structure is such that: coal 46%, raw materials 15% electricity 8%, labor 6%, and other costs 24%. Our data showed that historical EBITDA margin on average for 20 public cement companies in Vietnam is at 15.3% in 2013. In 2013, the EBITDA margin of most cement companies reduced from their level in 2012. The main reason is that due to weak demand, the cement companies did not increase their sales price while their input’s prices such as electricity, gas, oil continue to rise.

Sector Consolidation – Viettel could be a player or just their opportunistic business? We are observing an active consolidation tendency more than ever in cement sector of Vietnam. In this situation where many cement producers are facing financial distressed, consolidation is just a matter of timing to obtain the economy of scale for this sector in both production and logistics. Most recent active local buyer now is Viettel Group, the largest military-run telecom provider. Viettel is expanding into cement and become one of the big players. Viettel Group just acquired Cam Pha Cement JSC from Vinaconex JSC, and then Ha Long Cement JSC from Song Da Corporation. Viettel now holds 4.4MTPY of cement from these two investees.

Vietnam Cement Report 2014 is the third issue published by StoxPlus. Our previous issue, which was released in 2013, provided in-depth analysis of Vietnam cement supply-demand and the supply surplus situation. In this new and updated report, we continue to investigate further the supply and demand for cement, as well as forecasting analysis until 2030.

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