Cement Industry: Difficulties Pile Up

The crisis of surplus, serious imbalance of supply and demand, and difficulties of enterprises are the most general picture of the current cement market. What direction for the cement industry in the current context?

Loading cement onto vehicles for export to INDONESIA.

Oversupply crisis, domestic consumption declines

The imbalance between supply and demand in the cement industry has been going on for many years, but the situation is getting worse in 2023. According to the leader of the Vietnam Cement Corporation (VICEM), 2023 is the most difficult year for consumption in the more than 120-year history of the Vietnamese cement industry. Why is cement consumption so difficult? According to the latest estimates from the Ministry of Construction, in the first 6 months of 2023, cement production output is estimated at 39 million tons, down 7%, consumption reached 43 million tons, down 10% compared to the same period in 2022, of which domestic consumption 29 million tons, down 8% compared to the same period in 2022.

The reason for the decrease in domestic consumption is due to decreased demand, frozen real estate market, and slight decrease in public investment compared to the same period; while the designed capacity has increased, the total capacity of the whole industry is currently 120 million tons; the application of science and technology has helped increase productivity, the total capacity of the whole industry is up to 130 million tons/year. It is estimated that the domestic cement consumption demand for the whole year will only reach 65 million tons, compared to the total capacity, the amount of cement produced is half surplus.

Exports are difficult in every way.

Where will half of this cement surplus go? In recent years, export has been the solution, chosen by businesses to deal with the surplus cement source. But in the first 6 months of 2023, exports are also difficult. According to the Ministry of Construction, the export of cement and clinker products in the first 6 months of 2023 reached 14 million tons, down 15% compared to the same period in 2022. The export value is estimated at 700 million USD.

As a major export market for Vietnam (estimated at about 65% of cement and clinker exports), exports to China have been quite gloomy since the beginning of the year, as the country's real estate market has not fully recovered. Exports of this item to China in the first quarter of 2023 only reached nearly 11.4 million USD, down 95% over the same period.

Vietnam's second largest export market is the Philippines. But this country has announced a temporary anti-dumping tax on Vietnamese cement, making exports to this market difficult.

In addition to seeking to export to traditional markets such as the Philippines, China, and Bangladesh, cement companies are actively seeking new markets. Currently, many companies are seeking to export cement and clinker to the American market. However, the export volume to this market is still small. Exporting cement to Europe is like "entering a difficult door", because it is expected that from October 2023, 27 member countries in the European Union (EU) will pilot a carbon border adjustment mechanism. From 2026, the EU will impose carbon taxes on iron and steel, cement, and fertilizers. Importers must report the amount of emissions in cement and clinker. If these emissions exceed EU standards, they will have to buy "emission certificates" according to the current carbon price in the EU. Cement manufacturers are forced to reduce emissions to meet standards, according to EU requirements. Thus, in the long term, this is a "difficult" market, and Vietnamese cement enterprises will not easily enter this market if they do not switch to green production.

In particular, from January 1, 2023, clinker export tax will increase from 5% to 10%, according to Decree No. 101/2021/ND-CP, to limit the export of products using a lot of raw materials, fuels and non-renewable resources. Export tax increases but the export price of clinker does not increase, making the difficulties of businesses even more complicated.

The more the furnace runs, the more it loses.

In the past, businesses boosted production, increased productivity, and increased kilo running time to increase profits. However, the more productivity they increased, the more losses they suffered, the more clinker was dumped into the landfill, quality decreased, and logistics costs increased. Cement is a special product with a shelf life of about 60 days, and cannot be stored for a long time, so it cannot be produced and then stored. In fact, from the end of 2022 until now, many cement factories have had to stop kilns. Some factories with 2 kilns had to stop 1 kiln; some factories with 3 kilns stopped 2 kilns, and 1 kiln was still operating...

Cement enterprises are under great pressure, that is, cement demand is decreasing, selling prices are decreasing but prices of electricity, coal and input fuels for cement production are increasing, or are at high levels, affecting production and business efficiency.

On April 27, 2023, EVN issued Decision No. 377/QD-EVN adjusting the average retail electricity price to VND 1,920.3732/kWh (excluding VAT). Thus, each kWh increases by nearly VND 56, equivalent to an increase of 3% compared to the current average retail electricity price. Applicable from May 4, 2023.

According to the Vietnam Cement Association, electricity prices currently account for 35% of production costs. The increase in electricity prices leads to an increase in production costs. Economic experts say that if the impact on the costs of electricity-intensive industries such as steel, cement, and paper production is calculated, steel costs will increase by about 0.18%, cement costs will increase by about 0.45%, and paper costs will increase by about 0.4%.

In the cement sector alone, electricity costs account for 14-15% of the cost of goods sold, except for large factories using cement rotary kilns, where electricity costs account for about 9-10% of the cost of goods sold. It is estimated that a 3% increase in electricity costs will increase the cost of goods sold, and the total pre-tax profit of the cement industry will decrease by 13%, affecting the business performance of enterprises.

What is the "way out" for the Cement industry?

Difficulties piled on top of difficulties, many businesses struggled and struggled. Some small-capacity cement factories had to close permanently; some businesses chose to temporarily stop the kiln, close the factory, and lay off workers; large businesses were "healthier", choosing the solution of keeping production at a moderate level, maintaining 1 or 2 kilns running.

In production and business management, in addition to saving and reducing costs, the application of science and technology, the use of waste as alternative fuel in cement production should be promoted and it is hoped that all levels of industry will remove difficulties in implementation procedures and preferential loans, creating favorable conditions for enterprises. The use of excess heat to generate electricity is also promoted by enterprises, however, difficulties in capital and the requirement to add projects to the local electricity planning are also barriers, requiring active support from all levels of industry and local authorities.

The representative of the Cement Association said that to solve the difficulties, we must find every way to expand the domestic cement consumption market. specifically, we need to increase the construction of houses, industrial buildings, urban areas, social housing, workers' housing; actively use cement in the construction of roads, overpasses... Currently, there is a surplus of domestic cement, the State also needs to support exports by reducing or temporarily postponing the increase in clinker export tax.

Source: baoxaydung.vn