StoxPlus is pleased to introduce Vietnam Cement Market Report 2015, the third issue on this industry. This report presents a board range of topics, both sector-specific and cross-cutting market issues.
1) Despite strong growth of domestic consumption and export activities, Vietnam cement market continue to experience the supply surplus with considerably low utilization rate of 60% in 2014 if excluding export sale volume. Domestically, cement consumption has reached 50.8 million tons, posting a growth of 10 percent year-on-year while export volume was pegged at 21.2 million tons, valuing at US$1bn. However, compared to the total capacity of 89.6 MTPY, the utilization rate was considerably low at 60% if excluding export sale volume. 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 7% annual demand growth for cement until 2025. As such, Vietnam cement market will not reach equilibrium until 2022 at our base case scenario. This could be explained by the fact that many mega cement factories are under construction and expected to add up 14.7 MTPY to total production capacity within the next two years.
2) By region, the South is still facing a significant shortage in cement supply due to the unavailability of natural resources for producing clinkers. 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. Beside, cement demand landscape can change significantly based on the implementation of infrastructure projects and real estate cycle. 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. There are 292 projects planned until 2030, which is value at a total of US$283bn. Given the lack of funding, the plan for infrastructure is more of a wish list with low chance of being implemented as planned.
3) Logistic remains the weak point of Vietnam cement companies. In fact, logistics for transporting clinker and cement has not yet developed so that ports of grinding stations cannot handle big vessels (20,000 DWT and above). As a result, cement manufacturing cost in the South is normally US$20 per ton higher than that in the North. Also, Vietnam cement companies has to export via FOB contracts, losing the competitive advantages compared to other peers in regions including Thailand and China.
4) Competitive landscaping: VICEM continues to be the largest group in Vietnam cement sector with 35% of total market share, followed by foreign-owned groups (31% market share) and local private (30% market share).
5) Latest Cement Pricing Analysis: Different groups of players have different competitive advantages that impact their sale strategies as well as pricing policy. 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$60 in the North, US$65 in the Central, and US$78 in the South.
6) Vietnam cement companies improved their efficiency in 2014, but there is still a gap compared to other peers in region. Our data showed that historical EBITDA margin on average for 26 public cement companies in Vietnam is at 8.0% in 2014, showing an increase by 1% compared to 2013. However, this EBITDA margin is considerably lower than other peers in regions. The main reason is that due to low productive rate, high investment cost per unit, high debt, and limitation in using alternative fuels and materials.
7) Direct sale would be a new development trend in this sector for the next few years. To reduce the distributors’ influence, producers promote direct sales of bulk cement to large projects or to industrial customers (e.g. ready-mixed concrete, pre-cast concrete product, or infrastructure projects), as these customers insist of quality testing and technical support at sites that distributors could not afford. As of 2014, approximately 10% of total cement consumption was distributed directly to the retailers. This proportion is expected to surge and become a trend within the next few years with the promotion of leading pioneers for direct sales including LafargeHolcim and TopCement.
8) Consolidation and renewable energy would be a must to ensure the future of Vietnam cement sector. We are observing an active consolidation tendency 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. As a sign, the sector also witness the construction of mega cement plants including Song Lam (4.5 MTPY), Xuan Thanh 2 (4.5 MTPY) to obtain the economy of scale for this sector in both production and logistics. Also, for cost efficiency, cement companies in Vietnam are starting to use renewable energy as well as promote direct sale. The pioneer for this trend is LafargeHolcim. As required by laws, WHRPG would be constructed by many other Vietnam cement companies within the next few years if funding gap is fulfilled.