Cement industry faces prolonged challenges

Many cement companies reported losses or sharp profit declines in the first quarter of 2023 due to property market woes, slow disbursement of public investment capital, and supply surplus.

Vietnam Cement Industry Corporation (Vicem) data show that cement supply continues to exceed demand. Cement supply is forecast to be about 117.8 million tons in 2023, while domestic demand is only 68-68.5 million tons, leading to increasingly fierce competition.

The export market of cement and clinker also faces many difficulties because the Philippines increased the anti-dumping tax rate on cement imported from Vietnam, expectedly starting from the beginning of the second quarter of 2023. China's import demand for cement and clinker has not yet bounced back.

Export prices of cement and clinker are low due to fierce competition among exporters. Shipping rates have increased by $4-5 per ton since March 2023. Meanwhile, total consumption of cement and clinker including exports in Q1 reached 20.76 million tons, down 19.9% over the same period in 2022.

These effects were reflected in the business results of cement businesses.

Ha Tien 1 Cement JSC (HT1) recorded net revenue of nearly VND1.7 trillion ($72.44 million) in Q1, down 14% year-on-year, and gross profit was only VND76 billion ($3.24 million), down 54%. The company is also under financial pressure when financial expenses increased by 56% over the same period last year to VND43 billion ($1.83 million).

As a result, Ha Tien 1 posted a loss of VND86 billion ($3.66 million), a record quarterly loss of the company, while it made profit of VND25 billion ($1.06 million) in Q1/2022.

Similarly, Vicem But Son Cement JSC (BTS) posted a loss of VND18 billion ($767,000) in Q1, while it made profit of nearly VND18 billion in Q1/2022.

BTS explained that the cement oversupply continued to be at a high level, while domestic consumption levelled off. Meanwhile, Vietnam's main cement and clinker importers continued to implement policies to protect domestic production with technical trade barriers, and China's demand for clinker imports is yet to recover.

Bim Son Cement JSC (BCC) recorded net revenue of VND847 billion ($36.09 million), down 28.3%, equivalent to a decrease of VND335 billion ($14.27 million). The company reported a loss of VND48.6 billion ($2.07 million), while the same period last year it had profit of VND68.6 billion ($2.9 million).

Similarly, other businesses such as VICEM Gypsum And Cement JSC (TXM) recorded a loss of VND2.1 billion ($89,500), and Vicem Hai Van Cement JSC (HVX) earned post-tax profit of VND61 million ($2,600), down nearly 85%.

Although Q1 experienced many difficulties, analysts of many securities firms predict that cement producers will still face many challenges in 2023.

SSI Research forecasts that domestic cement consumption this year will be flat compared to 2022 due to the weakness of the real estate market, although there is a positive light from public investment.

The company's analysis division sees the export market as likely to recover in the second half of 2023 due to the reopening of China. This can help reduce competitive pressure for businesses in the north and central of Vietnam.

However, domestic pressure increases as the industry's capacity increases by 3-10% in the period 2022-2023, leading to more competition in the selling price of cement.

From the perspective of Mirae Asset Securities, the cement industry may be negatively affected by rising electricity prices. Mirae Asset estimates that electricity costs account for about 14-15% of cost of good sold (COGS). For large enterprises with cement rotary kilns, the figures are about 9-10%.

Mirae Asset assumes, if businesses cannot pass on the cost hike to consumers, then a 3% increase in electricity costs will lead to an increase in COGS. The total pre-tax profit of the cement industry is forecast to decrease by 13%.

KIS Vietnam Securities said that Vietnam's cement industry will face challenges in the short and medium term.

First, domestic issues related to housing developers and capital markets amid an economic downturn will hinder construction activity and consumers might adopt a "wait and see" approach when the market is still volatile.

The second, competition is heating up in both the domestic and export markets. Vietnamese exporters will compete with other regional players in traditional markets as well as new markets, while construction activities are expected to stall and demand is expected to be lower amid persistently high borrowing costs.

The third, the improvement in technology and the change in regulations on the ratio of additives will push the industry into excess capacity, in addition to the new clinker export tax. The drop in global demand amid global overcapacity also creates more hardship for the industry.