Cement industry revenue declines: How to recover?

Unprecedented difficulty

According to the Vietnam Cement Association (VNCA), total production output in the first 6 months of the year is estimated at 44 million tons, equivalent to the same period last year. Factories are only running at 70-75% of their total design capacity, with accumulated inventory currently at 5 million tons.

The sharp decline in cement product consumption and the prolonged decline in exports have been causing a lot of pressure on cement enterprises.

The cement consumer market is gloomy, while the total designed capacity of the cement industry is too large (123 million tons, but can produce tens of millions of tons more than this number), so there are currently 4 production lines with a capacity of 11.4 million tons of cement/year, which have been completed but have not been put into operation because the products cannot be consumed.

Previously, in the period 2014-2022, the annual output of clinker and cement consumption increased, typically in 2022, the whole industry consumed 108.4 million tons. However, in 2023, consumption dropped severely, reaching 87.8 million tons, equal to 88% of 2022. In the first 6 months of 2024, the situation was similar to last year.

Also from 2023 to now, clinker and cement production has seriously decreased, with total output in 2023 reaching only 92.9 million tons, and the entire industry's operating lines only reaching 75% of their design capacity.

For example, Vietnam Cement Corporation (Vicem) is facing a series of major difficulties in cement production and business, stemming from a sharp decline in market demand, both domestically and for export. This is the third consecutive year that the cement industry in general and Vicem in particular have experienced a decline in consumption output, causing revenue and profits to decline.

The cement industry is still affected by weak demand as the real estate market shows no signs of recovery, public investment projects are slow to implement, cement supply far exceeds demand, the application of reinforced concrete expressway overpasses is still limited, and the solution of using cement to reinforce and stabilize the ground has not been applied.

Vicem's clinker production output in the first 6 months of 2024 reached only 7.63 million tons, equal to 45.1% of the 2024 plan and down 7.8% over the same period in 2023. Cement production output reached 9.77 million tons, equal to 45.4% of the plan and down 7.2% over the same period.

Total product consumption in the first 6 months reached 11.45 million tons, equal to 47.6% of the 2024 plan and equivalent to the same period in 2023. Of which, cement consumption reached 9.86 million tons, down 6.2% over the same period last year.

Total revenue in the first 6 months only reached 13,198 billion VND, equal to 46.1% of the 2024 plan and down 19.4% over the same period in 2023. State budget payment reached 547 billion VND, down 20.9% over the same period.

Meanwhile, the export channel is also narrowing as China, which is the largest importer of cement and clinker, is also boosting exports, making it even harder for Vietnamese cement to compete.

Continue to solve difficulties

According to the Ministry of Construction, the pressure of excess domestic clinker production capacity is very large, over 50 million tons, while the construction speed is very slow, leading to bad debt pressure in the cement industry that is and will become a burden for the economy. Without support solutions from the State, many cement enterprises will go bankrupt.

At the conference on removing difficulties, promoting production and consumption of cement, steel and construction materials recently chaired by the Prime Minister, Deputy Minister of Construction Nguyen Van Sinh said that many cement factories are currently under great financial pressure and difficulties due to large initial investment loans, high production costs, slow product consumption, making cash flow in production uncertain.

Representatives of the Ministry of Construction proposed that the Prime Minister and the State Bank adjust policies on debt forgiveness, debt extension, and lowering bank interest rates for debts of construction materials and cement enterprises to suit their current capacity to fulfill financial obligations.

At the same time, it is recommended that the Prime Minister and the Ministry of Finance adjust tax policies to ensure competitiveness with other exporting countries, specifically adjusting the export tax on cement clinker, currently at 10%, to 0%, because this is a deeply processed product.

Along with that, amend the Law on Value Added Tax in the direction that clinker products are not subject to Clause 2, Article 5; so that clinker is subject to a 10% value added tax rate when exported as for domestic consumption and is deducted from input value added tax similar to cement products.

VNCA recommends that the Ministry of Transport soon deploy or propose the Government to build viaduct-type roads, replacing reinforced concrete roads with earth-based roads in suitable places. This technology is suitable for weak ground and places that need flood drainage.

Promote the use of cement to reinforce the roadbed instead of the current traditional technology of filling the highway bed with soil and sand to increase the life of the project.

To solve difficulties for the cement industry, Prime Minister Pham Minh Chinh requested that the import-export policy of construction materials must protect domestic production, reduce imports, ensure market competition; have mechanisms and policies to encourage domestic production, limit imports...

Regarding state management of the cement sector, the Prime Minister assigned the Ministry of Construction to study and propose re-establishing the Cement Sector Planning to supplement the Law on Planning (amended) in the coming time.

Regarding production, the Prime Minister emphasized the need to diversify construction material products to suit different types of construction works and climatic conditions, meeting market demand. Review and cut production costs for raw materials, fuels such as coal, electricity, oil, and gas; digitally transform and green in a creative way; innovate and apply modern production technology and management methods, improve productivity, quality, and reduce product costs; apply solutions to improve energy efficiency in production, take advantage of cheap fuel sources from waste from other industries to reduce production costs; combine solutions to co-process industrial and domestic waste to protect the environment.

Regarding management and market: Increase domestic consumption of construction materials through implementation in large projects, public investment projects, irrigation construction works, natural disaster prevention, etc. as well as households building and repairing houses in urban and rural areas. Review the sales agent system; cut down on departments and intermediate stages from the manufacturing plant to customers consuming the products; review and reduce appropriate sales costs; search for and expand markets, promote exports of construction materials products; construction materials enterprises, especially cement, do not lower prices below product cost and ensure fair competition.

To overcome difficulties and challenges, cement enterprises have been implementing many solutions to reduce costs and enhance competitiveness. For example, increasing the use of waste as alternative fuel, using sludge to replace clay, using artificial gypsum to replace natural gypsum; researching new products to reduce emissions into the environment, contributing to reducing production costs, protecting the environment, reducing the use of non-renewable resources; implementing procedures to be granted green product certificates for export to demanding markets....

Source: https://congthuong.vn/nganh-xi-mang-doanh-thu-sut-giam-go-bang-cach-nao-327598.html