Displaying items by tag: Vietnam

Vietnam: Data from the Vietnam Cement Association (VNCA) shows that the country’s export volumes of cement rose by 55% year-on-year to 31.7Mt in 2018. Producers generated an estimated US$1.2bn from exports, according to the Viet Nam News newspaper. The VNCA’s Chairman Nguyen Quang Cung attributed growing exports to decreased production in China, where production lines have been closed due to pollution.

The Ministry of Construction has attributed growing exports to better performance in the construction sector. Domestic cement consumption grew by 9% to 65.1Mt in 2018. It estimates that consumption will rise by up to 8% in 2019 to around 99Mt, comprising 69Mt for the local market and 30Mt for export. The main export markets in 2019 are expected to be the Philippines, Bangladesh, China, Taiwan and Peru.

What’s long, thin and has already exported more than 20Mt of cement in 2018? The answer is Vietnam, which reported this week that it exported 20.1Mt of cement between 1 January 2018 and 31 August 2018. That’s 106 - 112% of its annual ‘target’ in just eight months and around the same amount as it claims to have exported during the whole of 2017. Total cement production in Vietnam was 63.9Mt between January and August 2018, meaning that the country has exported 31.3% of the cement it made over this period. Vietnam itself consumed ‘just’ 43.8Mt. The government target for Vietnamese cement consumption during 2018 is around 65 - 66Mt. That’s basically the amount it has already made.

From a market-led mind-set these targets seem fairly large, huge even, especially the export target. Indeed the concept of such national targets is in itself an alien concept. In most of the world, imports and exports are results of market supply and demand trends, not drivers prescribed by the government.

The reasons behind this apparent desire to export these very large volumes of cement are, therefore, probably best understood from within Vietnam, and we won’t speculate too much on them here. However, Vietnam is clearly determined to continue to produce ever more cement than it can use. In what other country could a major government-owned producer export more than 70% of the cement it makes? In the first half of 2018 Vicem did just that, shipping 11.7Mt of cement overseas from the 14.2Mt that it made.

In 2017 Vietnam’s export target was 15Mt. It ended up smashing this to the tune of 5Mt, 33% more than the target. At the current rate the sector looks like it could overshoot even more spectacularly this year, perhaps hitting as much as 30Mt of cement exports in 2018. This is more than a big European country like Germany can produce! It certainly sounds like a lot but… is it really an exceptional number?

Looking at data from World’s Top Exports (WTEx), which we advise delving into, it seems that this would be a very high number indeed. It reports that a total of 166.6Mt of cement were exported internationally in 2017. It reports that the top exporter was not, as you may by this point have been primed to suggest, Vietnam. It wasn’t even China, as the former number one was bumped into second place (12.91Mt) by Thailand (13.03Mt). Turkey was third (12.79Mt), with Japan fourth (11.93Mt) and Vietnam was listed as fifth (9.53Mt).

All of these biggest exporters except Turkey are in the Far East, an area swamped with cheap cement. China’s average export selling price according to WTEx was US$45/t, against a global average of US$55/t. Thailand undercut it by US$3/t at US$42/t, perhaps explaining its rise to the top spot. Turkey’s average export price was also US$42/t, although it is located in a region that has a lot of saturated markets and others that are growing rapidly. Its average export distance was second only to China’s. Vietnam’s average cement export price was US$51/t, higher than the others. This does not tie in with the apparent rise in exports so far in 2018. This price may have since fallen. Surprisingly, Japan had the lowest export price of the top five exporters by volume at just US$30/t in 2017.

So, to re-answer the question posed two paragraphs above, 30Mt is a very high number indeed. But you’ll have spotted the large discrepancy between WTEx’s 9.53Mt figure for Vietnam, which relies on reciprocal import partner data, and the government’s official line of 21Mt for 2017. One is tempted to ask where the other 50% of the exports reported by the Vietnamese actually ended up, especially given that WTEx reports a US$1.5bn difference in the value of exports and imports across the year. Imports were valued at US$8.8bn but exports were valued at US$10.3bn.

The mystery destination of all that cement, real or imagined, could be the topic of an entire separate column. What appears to be the case at present, is that rampant Vietnamese cement overcapacity is here to stay. The country, as well as Japan, Turkey, Thailand et. al., could stand to benefit in the short term, as China acts ever more aggressively to end its own oversupply situation. However, there could come a time when it has to take its foot off the gas. There are no signs of that yet though.

Vietnam: The Vietnam Cement Industry Corporation (Vicem) has appointed Bui Hong Minh as its general director. He was previously the deputy general director of the company, according to the Viet Nam News newspaper. He replaces Tran Viet Thang who has been relieved from the role following allegations of business malpractice.

Minh, aged 46 years, has held the position of deputy general director at Vicem since 2013. Prior to that, he worked at the But Son and Ha Tien cement companies.

Last week we looked at the prospect of two new Angolan cement plants, a situation that will reportedly lead the country to being ‘self sufficient in cement.’ When we hear this phrase, very often from relatively small markets in Africa or Asia, the obvious next step invariably follows: The country in question will become a regional powerhouse for cement exports.

But try telling that to the desperate Vietnamese cement producers, swamped by chronic overcapacity and very low prices, both at home and abroad. In an effort to shift more of Vietnam’s cement mountain, this week the Ministry of Planning and Investment (MPI) proposed big changes to its handling of cement exports. At the moment cement is subject to a 5% export tax and does not receive VAT refunds. This means that Vietnamese cement has become less competitive than Chinese, Thai, Indonesian and Japanese cement on the regional market, compounding the oversupply situation at home.

The MPI now proposes to scrap the tax and allow for VAT refunds to avoid a colossal 36-47Mt oversupply of cement by 2020. It is quite staggering that this response hasn’t been considered before. This is especially the case, given that the VICEM’s General Director Tran Viet Thang asked for the government to look at the rules back in February 2017. Indeed the Vietnam Cement Association predicted an oversupply of nearly 50Mt/yr by 2020 in January 2017.

Vietnam exported 14.7Mt of cement and clinker in 2016 according to its domestic statistics service. The country was the seventh largest exporter of cement and clinker in 2016 in value terms, with a total value of US$431.7m. China, as one might suspect, topped the list, but only at US$683.6m, around 58% more than Vietnam. Given that China’s cement capacity is around 20 times that of Vietnam, this highlights the extent to which Vietnam is trying to rely on imports.

A market-led response to this would be to close some of the cement plants down and stop commissioning any new ones. China has made some inroads into this approach and Vietnam is following suit… to some extent. That said, however, Trinh Dinh Dung, the Deputy Prime Minster, inaugurated the second production line at the Thanh Thang Cement plant on 4 July 2017 and Long Son Cement will open its second production line at Long Son in late August 2017. That new line will add nearly another 3Mt/yr of capacity to the national total just by itself. On top of this, Thai-owned Siam City Cement Vietnam opened a new ‘terminal’ in Vietnam in late June. Thailand ranked above Vietnam in the cement and clinker export list for 2016 at US$612.2m, suggesting that, contrary to the obvious implication, the port could even be used to ship out Thai exports into Vietnam!

This is not the first time we have heard about Vietnam’s massive cement surplus but it is the first time that the government appears to have registered it as needing attention. A market-led economy would simply shut the plants down but Vietnam plays by different rules. Will changing the rules on tax help it sell out its surplus? Call us in 2020…

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.

There has been an interesting knock-on effect from further economic integration of the Association of Southeast Asian Nations (ASEAN) this week. Holcim Philippines may delay the construction of a 2.5Mt/yr cement plant in Bulacan province due to a drop in import tariffs in 2015. Vietnam or Indonesia were named as possible sources of clinker due to their excess capacity.

The ASEAN group comprises 10 countries including Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar and Cambodia. Their respective cement production capacities range from 0.3Mt/yr at a clinker grinding plant in Singapore to Indonesia's integrated cement production capacity of 45Mt/yr. In total the ASEAN countries have a production capacity of around 220Mt/yr for a population of about 600m with national gross domestic products (GDP) per capita ranging from US$900 (Laos) to US$52,000 (Singapore).

One scenario for cement producers in the ASEAN countries is that they might be swamped by exports from places like Vietnam. That country had a production capacity of 73Mt/yr in 2013 with cement sales predicted to rise to 63Mt in 2014. Assuming the government released figures are correct, that leaves at least a 10Mt of cement production-sales gap that could torpedo a neighbouring country's cement industry in the free trade area.

Indonesia, the other potential source of clinker that Holcim Philippines mentioned, has seen construction growth slow and production capacity grow. Holcim reported in its nine-month report in November 2013 that, while national cement sales had risen by 5.3% to 41.6Mt, supply capacity had risen by 9% to 59Mt/yr. Assuming equal sales distribution throughout this suggests a capacity gap of 4Mt.

Some politicians in the region have complained that impending free trade area will create winners and losers. At a recent ASEAN meeting in Yangon, Myanmar a Myanmar planning minister raised the issue of a development gap within the ASEAN region calling for renegotiation for countries like Myanmar, Cambodia and Laos.

Meanwhile both the cement industries in Vietnam and Indonesia have clearly anticipated the implications of the ASEAN Economic Community. The Vietnam National Cement Association expects to remain competitive within the ASEAN region and against Chinese imports after 2015. In Indonesia State Enterprises Minister Dahlan Iskan stated this week that the cement industry was ready for the ASEAN Economic Community thanks to the government's strategy to consolidate its major cement producers within one company, Semen Indonesia. Consistent cement industry growth in South East Asia may be about to change.

Vietnam: Hoang Mai Cement has announced that Dang Tang Cuong retired as deputy general director from 1 August 2013.

The outgoing chief executive of PPC (Portland Pretoria Cement) officer, Paul Stuiver, summed up the dilemma facing cement producers on the east coast of Africa. Building near the coast leaves you vulnerable to imports.

In a recent interview with the South African business weekly, 'Financial Mail', Stuiver said that imports are not a threat to African expansion, provided that a facility is not built within 200km of a port. Exactly the same issue was raised by Yves De Moor in his column in the November 2012 issue of Global Cement Magazine.

Countries along Africa's east coast receive imports, but Stuiver said that Africa's high logistics costs mean the prices increase steeply as the cement is transported inland. He commented that the markets in Mozambique and KwaZulu Natal in South Africa were especially vulnerable and that most imports to South Africa come through Durban. Unsurprisingly both of PPC's big recent investments have been in landlocked countries, Zimbabwe and Ethiopia respectively. In July 2012 it also tried to invest in CINAT, the Democratic Republic of Congo's state-owned cement producer.

The import issue to South Africa reignited last week when the South African National Regulator for Compulsory Specifications (NRCS) confirmed that it had confiscated 'sub-standard' cement imported from Vietnam. As we covered in August 2012 in this column this follows a row in July 2012 about whether cement from Pakistan's Lucky Cement was complying with South African standards.

Although standards still lead the argument, more honesty has emerged with the use of the word 'dumping' in the complaints. Stuiver explained that "...the price of cement from Pakistan, India and Vietnam is low because electricity, fuel and transport rates are subsidised." Whilst PPC can report that its revenue has risen by 9% to US$837m for the first nine months of 2012, complaints against foreign imports seem overly protective. In 2009 PPC confirmed the existence of a cartel in the country. PPC has even gone to the Advertising Standards Authority to stop imports with elephants on their bags!

With reports that Nigerian producer Dangote is building a new US$389m plant in South Africa, thoughts turn to what will happen once South Africa becomes 'self-sufficient' in cement, like Nigeria which has proudly announced this recently. Giant infrastructure projects are one way to use all that excess cement and this is what Lafarge WAPCO has been asking the Nigerian government to do recently, in a road building drive. Better transport links in South Africa would wreck Stuiver's maxim about not building near a port.

Two solutions from this week's news might appeal to the industry on the south and east coasts of Africa. The first is to use inventive export barriers just like the Bureau of Indian Standards have imposed to slow down exports from Pakistan. The second is to persuade importers to do what a North Korean ship reportedly did with its consignment of cement this week off the coast of Somalia: dump it in the sea.

The news this week that Vietnam's state-owned cement producer, Vicem, has made a first half profit 75% larger than that of the first half of 2011 is a surprising statistic from a country with so much spare cement.

The country has spent most of the past decade building cement plant after cement plant. According to research conducted for the April 2012 issue of Global Cement Magazine, Vietnam now has a cement capacity of over 70Mt/yr! Vicem says that it sold 9.7Mt of cement in the first six months of 2012 and reports that this level represents 44% of its intended production for the year. This makes its 2012 cement production target somewhere in the region of 22Mt.

How much of the non-Vicem cement capacity is being utilised in Vietnam is unknown, but it is certainly too much for Vietnam's current needs. When the country's own government owned cement producer announces that it expects to have 6Mt of cement stockpiled by the end of 2012 (enough to supply the UK for the whole of 2013), it is clear that there is a serious cement surplus. Oversupply has not been met by demand, cement prices are depressed and attempts to export, to countries both near and far, are on the up.

To help curb the problem, one cement plant project has been halted in the past week. The Kinh Bac City Development Share Holding Corp (KBC) has received permission from its state to not build its planned 5Mt/yr plant.

Halting new projects is one way for the country to reduce its overcapacity, but in the short term the industry is looking at exports. While its lengthly coastline makes getting cement to ports for export fairly straightforward, Vietnam is badly located to exploit its current situation in this way. It's proximity to China, which itself is starting to face an oversupply scenario despite its efficiency gains, leaves Vietnam at a cost disadvantage.

As well as there being China on Vietnam's doorstep, many other countries in the region, (Indonesia, Malaysia, Japan, South Korea, Philippines, etc), are also self-sufficient in terms of cement and are able to export extra capacity as necessary. Additionally, East Asian countries have often seen Africa as a good export market but the recent rise of Nigeria as a major producer may reduce this opportunity.

Amid all of these numbers the Vietnam News Brief Service commented that the current oversupply in the socialist state was down to the 'unplanned' construction of cement plants over recent years.