Displaying items by tag: GCW167

There were two telling stories from Vietnam this week that show the level to which demand has been overestimated in the centrally-planned cement sector. Firstly, the country reported that exports in the period between January and July 2014 increased by nearly a quarter year-on-year to 13.1Mt. Secondly, the Prime Minister announced that another five cement plant projects were to be axed, following nine others that bit the dust in 2013.

All this is against a backdrop of chronic lower-than-expected domestic cement demand. When we look at the figures, it’s not hard to see that domestic consumers have had trouble consuming all the cement produced in Vietnam. The government forecast for cement production in 2015 is in the region of 75 - 76Mt. If this was spread evenly between Vietnam’s 88.8m people, each person would have to consume ~850kg of cement. That’s possible but it is quite a lot for a lower middle income economy. However, separate reports state that a 10% rise in domestic sales on 2013 levels would lead to just 60Mt of domestic cement sales in 2015. This equates to a more realistic 675kg/capita.

These figures leave a massive and increasing amount of cement for export. Read again that figure from the first seven months of 2014 – 13.1Mt – Roughly the capacity of South Africa (~12.5Mt/yr), Tunisia (12.9Mt/yr) of Colombia (12.9Mt/yr)! Also, while cement exports volumes were up by nearly a quarter, the value of those same exports rose by only 20%. This indicates a drop in export prices and represents additional pressure to halt capacity expansion.

Against a backdrop of 90Mt/yr expected capacity in 2015 and falling export prices, the latest cement project cull certainly makes sense but even in a best-case scenario the country is looking at a capacity utilisation rate of just 66 - 67%. Some cement plant project owners have even found themselves trapped by the situation. Having indebted themselves on the promise of ever-increasing cement demand, they now face the prospect of throwing good money after bad, continuing to build and operate just to service debts. This is a very unenviable position indeed. The lifting of trade restrictions within the ASEAN Community on 1 January 2015 might help export volumes, but might also also drive prices down further.

Culling new cement plant projects is one thing, but could the next step be more drastic? North of the border, China is gradually reducing its overcapacity by removing older and less efficient capacity. Perhaps Vietnam would do well to follow suit.

Africa: With effect from 1 August 2014, Demelza Mulligan has assumed the management position of Haver Southern Africa. After having completed her Master’s Degree from the Polytechnic University of Münster in Germany, she worked for the Chamber of Industry and Commerce in South Africa.

The business administration specialist joined Haver Southern Africa in 2013 as its marketing manager. Mulligan will succeed Joachim Hoppe, who directed Haver Southern Africa for three years and who laid the foundation for positive future business development for southern Africa. Hoppe is returning to his work at the Oelde-Germany headquarters, where he will found the new business unit of Bergbau / Mining.