Cement in Vietnam
Written by Peter Edwards, Global CePeter Edwards, Global Cement Magazinement Magazine
Thursday 19 April 2012
The most easterly of the countries on the Indochina Peninsular, the Socialist Republic of Vietnam stretches for over 1400km north to south. It shares borders with China to the north, Laos to the west and Cambodia in the south west.
The country's 91.5 million inhabitants make it the 13th most populous nation in the world, although its large area (331,210km2) means that it is far from overcrowded.
The main population centres are in the north east, surrounding the capital Hanoi and in the extreme south around Ho Chi Minh City, formerly known as Saigon. Additionally, the extensive eastern coast, which runs for over 3200km, is populated throughout its length, with population density generally decreasing as one goes inland.
|GDP (2011 est.)||US$104bn|
|Population (2012 est.)||91.5m|
|Integrated cement plants||51|
|Average plant capacity||1.4Mt/yr|
Above: Summary data for Vietnam and its cement industry.
Source: GDP from World Bank Indicators; Population and area from CIA World Factbook; Cement data from Global Cement Directory 2012.
The area known today as Vietnam has been inhabited for many thousands of years. A series of dynasties from around 3000BCE was interrupted by Western influence sporadically from around 1500 onwards, with the Portuguese and French attempting and failing to establish trading posts. Christian missionaries also had little success in Vietnam.
Following a series of territorial wars and disputes, in which the Europeans attempted to gain control of the territories (sometimes by supporting both sides), Vietnam became a protectorate of France from 1802 to 1945.
Invaded like Indonesia and Malaysia by Japan during the Second World War, the country became a republic following the First Indochina War, between Vietnamese and the French, which lasted from 1946 to 1954. The French were ousted, but violence continued to 1975 due to the Vietnam War. The 'civil' conflict saw the communist north (Democratic Republic of Vietnam) and capitalist south (Republic of Vietnam) fighting a massively destructive 20-year battle for ideological control of the country. The intensity of the war was amplified by the two sides being supported by the major superpowers of the time; the US on the south side and the USSR on the north side. Both sides were seeking to use the war as a proxy for containment of each others' global political influence.
In 1975 the war ended with the fall of Saigon, the centre of the southern war effort now known as Ho Chi Minh City. Since 1976 the country has operated as a single-party socialist republic with the communist party in control of the executive, legislative and judicial branches of government. The country has steadily developed diplomatic relationships with most countries, including the US in 1995. The country has been developing rapidly, although it started from a low base after three decades of conflict and remains the least developed of Indonesia, Malaysia and Vietnam.
Since 1976, Vietnam has had to recover from the terrible damage inflicted on it by two successive wars. To begin with, its communist regime was backed by the USSR as it had been in the Vietnam War, with the country receiving many billions of dollars worth of military funding and food aid until the dissolution of the USSR in 1989.
The extent of the Vietnamese economy's reliance on this source of revenue can be seen in the GDP/capita graph. The country's GDP/capita rate fell to below US$100 in 1989 and 1990 and only recovered above US$200 in 1994.
Immediately before the collapse of the USSR, Vietnam had begun a transition from a centrally-planned economy to a socialism-based market economy. This has seen a shift towards exports like crude oil and rice, as well as manufactured products like clothes, shoes, electronics, machinery and wood products. Its customers are primarily the US (18%), China (11%), Japan (11%) and Germany (4%).
Vietnam brings in processed petroleum products, vehicles, steel products, raw materials for the clothing and shoe industries, plastics and various electronic items. Despite the fact that Vietnam's exports were up by 33% year-on-year in 2011, the country imports more than it exports. This has brought about a trade deficit that is adversely affecting other parts of the economy. High inflation, estimated at over 18% (average) in 2011 means that the Vietnamese Dong is on a downward trend and has been gradually devalued by 20% since 2008.
With the economic woes of some of its major export partners set to continue for the foreseeable future, the Vietnamese economy is likely to continue to suffer more in the coming months and years.
Cement - Introduction
Although the least developed of the three countries in this review, Vietnam has the largest cement industry. A headline figure of 71.3Mt/yr according to the Global Cement Directory 2012, (which includes a number of forthcoming plant projects and upgrades), places its cement industry as high as eighth largest in the world after China, India, Russia, the US, Russia, Japan and South Korea.
In 2012 the US Geological Survey reported that Vietnam had a clinker capacity of closer to 55Mt/yr in both 2010 and 2011. It reported that cement production was in the region of 50Mt/yr, placing it in the company of countries such as Indonesia, Brazil and Saudi Arabia. These headline figures indicate a capacity utilisation rate of approximately 85%, assuming clinker to cement ratio of 0.95.
The Vietnam National Cement Association (VNCA) represents the interests of the industry and affiliated smaller companies and research centres.
Above: Map of Vietnam showing selected cities, neighbouring countries and areas of water and position of listed integrated cement plants.
(click on the image to open a PDF showing a larger version of the map with a list of integrated cement plants in Vietnam.)
Cement - Corporations and companies
Much of the Vietnamese cement industry is overseen by VICEM, the Vietnamese Cement Industry Corporation, which directs much of the largely state-run industry. Positioned somewhere in the middle of three roles; trade association, a government unit and cement producer, VICEM has control over production levels at the majority of Vietnam's cement plants, including many Joint-Stock Companies and the Vietnamese plants of multinational firms.
VICEM: Previously known as the Vietnam National Cement Corporation (VNCC), VICEM is Vietnam's major established cement manufacturer. It operates 12 plants in Vietnam. Its oldest plants are Ha Tien 1 (1964), Bim Son (1980) and Hoang Thach (1980). Additional capacity was subsequently added at Hai Van (1994) But Son (1997), Hoang Mai (2000) and Hai Phong.
Joint Stock Companies: A number of Joint-Stock Companies (JSC) operate in the Vietnamese cement market. Although this type of cement company has operated in the market since the 1960s (Phu Tho 1967, Chieng Sinh 1973, Thai Binh 1979), a new wave came online in the 1990s due to the gradual transition from central planning to a socialist-based market economy.
These include Chinfon Cement Corporation (1992), Song Da (1994), Phuc Son (1996), Viet Trung (1996), Kien Khe (1996) and Quang Ninh (1998).
Foreign firms: The Nghi Son Cement Corporation, a JSC established in 1995, saw the start of foreign involvement in the Vietnamese cement market with Japanese cement firm Taiheiyo and fellow Japanese company Mitsubishi.
The Swiss multinational cement giant Holcim has been involved in the Vietnamese market since 1994, when it set up Morning Star Cement as a joint-venture with VNCC. Now called Holcim Vietnam (since 2002) and split between Holcim and VICEM, the company's production site is in Hon Chong in the extreme south of the country. The 2Mt/yr site, which includes an integrated plant, limestone quarry, clay quarry, a sea port and a river port for barges, covers a total area of 5.6km2. Holcim Vietnam also operates a grinding facility at Thi Vai, in the central south of the country. Approximately 70km east of Ho Chi Minh City, the plant grinds up to 1.4Mt/yr of cement on the banks of the Thi Vai River. The operation also has five ready-mix concrete batching plants in and around Ho Chi Minh City. It has 1500 employees across its cement and concrete operations.
France's Lafarge also has an interest in the country, setting up a liaison office and concrete plant in 2003.
Cement - Production, consumption, sales
The cement industry of Vietnam is still in the process of adjusting from a centrally-planned, state-run enterprise into a market economy. While the government has kept older capacity open, new capacity has come online, resulting in significant overcapacity.
After calls to overhaul the industry were sent to the Prime Minister in early 2011, the situation came to a head in mid-2011 when the Vietnamese finance minister, Vuong Dinh Hue, announced that the national government would have to provide capital to help four cement projects to deal with their foreign debts.
The four projects were among 16 in the cement sector that had government-guaranteed loans from foreign creditors worth a total of US$1.36bn. The Hoang Mai cement project reported a total debt of US$145m, followed by Tam Diep with a total debt of US$139m, Thai Nguyen at US$59m and Dong Banh at US$45m.
Hue said that the finance ministry would assist with up to three scheduled payments for the four troubled projects, but that if they continued to miss subsequent payments, the plants would have to sell up some of their assets.
After poorer than expected consumption figures in October 2011 (3.54Mt) due to cuts in public investment and frozen real estate projects the country recorded consumption of 'only' 49Mt in 2011.
The situation worsened in February 2012, when Vietnam's Ministry of Construction announced that it would temporarily delay work on several approved cement projects. The director of the ministry's Construction Materials Department, Le Van Toi, noted that many cement producers were facing losses due to decreasing consumption and high interest rates. "Many cement producers have had to borrow up to 80% of their total investment capital and that eats most of their profits while interest rates remain high," he said.
The Thanh Liem Cement Plant in northern Ha Nam Province had to close its doors due to significant losses, although the plant has not yet declared bankruptcy. Many other plants have cut their capacity sharply. "If the situation continues, the number of cement plants that will have to shut down will surge in the near future," warned Toi.
In late 2011 VCA chairman Nguyen Van Thien urged cement producers to boost their trade promotion and export heavily in 2012 to deal with the surplus. He expected that the producers would be able to export more than 7Mt of cement in 2012. Vietnamese cement is exported mainly to China, which has a sufficient domestic supply, to Indonesia and to Bangladesh.
More recently the Ministry of Construction reported that cement sales came to 9.57Mt in the first quarter of 2012, fulfilling 17.4% of its whole-year target for the industry. It cited several new projects that started in March 2012. Cement production was 9.98Mt, meeting 18.1% of the full-year target, (although these targets are clearly far above what is really required). Production in March 2012 was 4.85Mt, representing nearly half of the quarter's total.
With national consumption reportedly forecast to reach between 55Mt and 56.5Mt in 2012, an 11-12% increase over 2011, the Ministry reports a 20Mt/yr mismatch between supply and demand, with a production of 73Mt expected in 2012. This is due to the official line, which says that a further eight new cement plants will come online in 2012. It is interesting to note that the country earlier announced that exactly eight plants would be up and running by the end of 2011.
The overcapacity situation (and attempts to avoid worsening it) are plain to see. Indeed, in March 2012 VICEM said that its members' export volume had risen to 6% of its total production for the month, a massive 326% year-on-year increase. It acknowleged that it produced only two thirds of the cement that it made in March 2011.
In light of this, it seems strange that despite its lack of domestic demand, the Vietnamese Ministry of Construction reported that the country also imported 1.5Mt of cement in 2011. So far in 2012 it has spent US$90.5m on imports in the first quarter of 2012, making up 20.7% of the whole-year plan, including US$30.9m in March 2012. The country's exports were US$43.3m, fulfilling 19.2% of the full-year target, including US$10.4m in March 2012.
Cement - Future
With cement inventory indices up by 64% year-on-year in 2011, Vietnam is again looking to export large quantities of cement in 2012. The country is officially forecast to export 0.5Mt of cement and 5.5Mt of clinker in 2012, according to an official from the Vietnam National Cement Association (VNCA). The VNCA chief, Nguyen Van Diep, said that Africa would be the targeted market for most of the additional material.
Aside from continued overcapacity, another looming threat is the prospect that cement manufacturers (and others) may lose government fuel subsidies. In December 2011 the Minister of Finance Vuong Dinh Hue said that cement and steel producers enjoyed total fuel subsidies of US$120m in 2010 (the most recent year for which results were available at the time), and pointed out the losses of the state power company. Dinh said that producers only had to pay US$0.04/kWh but that electricity cost US$0.06/kWh.
Vietnam's over-supply situation looks set to stay in the short to medium term. Exports may provide some respite in the short term but for the country this is only a way to relieve the symptoms of overcapacity. Any cure will involve more decisive action. The country might look towards 'Chinese-style' environmental, economic or other regulatory drivers to force the closure of its older capacity.