Several cement companies in Vietnam have adjusted their planned cement production for 2023 after analyzing the movement of the construction industry, the real estate industry, and the overall demand-supply balance of cement. Cement production will be reduced in 2023 to suit the market demand. Some lines had to stop production from the second half of 2022. Those factors would make the cement industry’s production go down.
The cement industry in Vietnam underwent a difficult 2022, as the supply of cement exceeded demand by 40 million tons, domestic consumption increased insignificantly, reaching about 63 million tons, and exports compared to the previous year decreased by 15 million tons, so the whole industry can only export 30 million tons.
Vietnam Cement Corporation (Vicem) owns 10 production enterprises with a supply capacity of about 35 million tons/year, and also had difficulties reaching their set annual targets. Most of the targets were only finished at about 90-95% even after there have been production costs cut and sales boosts.
The total consumption of Vicem in 2022 is 27.46 million tons, reaching 93.2% of the year plan and down 6.7% compared to 2021, of which domestic cement consumption will reach 21.34 million tons, up 5.6% over the previous year; the consumption of clinker (including export) reached 2.88 million tons, down 45.6%. The above consumption targets have not reached the annual plan.
Profit before tax (excluding the exchange rate difference at the end of the period) was estimated at VND 1,532 billion, reaching 89.8% of the 2022 plan and down 30.5% (equivalent to a decrease of VND 671.9 billion) compared to 2021.
Mr. Le Nam Khanh, General Director of Vicem, said that the increase in input prices while the decline in export demand has made the corporation's profit in 2022 only reach 1,532 billion VND. Vicem has difficulty in coal supply when there is a shortage of quantity, quality, type, and price spike. Due to the high price, the input cost of coal fuel alone has added about 4,000 billion VND compared to 2021.
The fourth quarter is usually the main annual cement consumption season. But the situation of deep demand decline in the last months of the year had a great impact on production and business results and caused many difficulties for Vicem's operation. Meanwhile, the heavy loss of Ha Long Cement became the main factor that made Vicem not complete the profit plan in 2022.
Mr. Tran Quang Phuc, Deputy General Director of Vicem Tam Diep One Member Limited Liability Company, said that oversupply is the biggest problem in the production and sales of cement factories, including Vicem Tam Diep.
Oversupply is the most challenging problem for the consumption of Vietnam’s cement industry. The domestic market consumes over 60 million tons annually. However, in recent years consumption either declined or only increased at a very low rate. While the demand is the same, in the last 3 years, the cement industry has produced about 105 - 108 million tons.
In 2023, the supply will be replenished. The real estate market is predicted to be quiet in 2023 as bond issuance and real estate credit are tightened. In addition, the slow recovery of civil construction, works, and projects are also slow to implement, even have delays when facing difficulties in capital sources, disbursement of public investment capital is still slow, etc., signals a not-quite-smooth business for Vietnam’s cement industry in 2023.
There are plans to put several new cement production lines into operation in 2023, such as Line 4 - Long Son Cement (2.5 million tons), Line 3 - Xuan Thanh Cement (4.5 million tons), Ocean Cement (2.5 million tons), Long Thanh Cement (2.5 million tons). With the new lines coming into operation, cement supply will increase to about 120.7 million tons, while domestic demand for cement consumption is forecasted at only 64 - 65.5 million tons.
This leads to increasingly fierce competition between cement manufacturers. Facing the pressure to consume manufactured products, many units have to stop kilns or reduce kiln productivity.
Prices of input materials for cement production, especially coal prices, are forecast to remain high. Meanwhile, the selling price of cement has not been able to compensate, leading to a sharp decrease in production and business efficiency.
With many challenges, Vicem sets a target of a total revenue of about 40,919 billion VND in 2023, an increase of nearly 4%. The target for pre-tax profit (excluding exchange rate difference) is set at only 800 billion VND, down 47.8% compared to 2022.
The situation for private cement production companies such as Vissai, Long Son, Tan Thang, etc., is not better. Information from The Vissai Cement Group - a unit with a large consumption channel from export also shows that "the situation is quite bleak".
“Countries importing cement and clinker continue to implement many policies to protect domestic cement production, technical trade barriers; In addition, from January 1, 2023, Vietnam imposed an export tax on clinker from 5% to 10%”, Vissai representative emphasized.
Compiled by VietnamCredit