VietNamNet Bridge – Anticipating the excess of 40 million tons of cement by 2020, the Vietnam Building Material Association has proposed the government to stop some cement projects. However, it’s easier said than done.

Oversupply anticipated

Tran Van Huynh, Chair of the association, believes that with the financial crisis, the domestic demand in 2011-2013 would decrease by 14-15 million tons. By 2015, the domestic demand is expected to reach 60-65 million tons, lower than the initially predicted level of 75-76 million tons.

If Vietnam continues implementing the cement industry development plan stipulated in the government’s Decision No. 1488, the total cement output would reach 94 million tons by 2015 and 130 million tons by 2020. If so, Vietnam would have 25 million tons in excess by 2015 and 40 million tons by 2020.

A report by the Vietnam Cement Association showed that the cement productivity in February dropped by 50 percent over January and 49 percent over the same period of the last year. Forty two percent of the total sales were consumed in the north, 33 percent in the south and 25 percent in the central region.

Huynh said the economic difficulties and the weak demand have led to the slower sales of cement. But he believes that the main problem lies in the unreasonable cement industry development programming.

Investors rushed to inject their capital in cement projects, believing that the projects would “lay golden eggs.” Even the investors with no experience in the field and small investors with limited financial capability also threw their money into cement plants.

A report showed that there are 46 cement manufacturers who churn out cement products bearing a lot of different brands, and many of them have been on the verge of bankruptcy after taking loss repeatedly.

Other manufacturers have realized the supply-demand imbalance and have to cut down the production plan in 2013.

The Vietnam Cement Corporation (Vicem), the big guy in the cement industry with 8 subsidiaries, has also decided to set up the modest production target of 19-20 million tons in 2013, after experiencing a difficult year 2012 with the high inventories of 1.39 million tons.

The corporation hopes to obtain the total revenue of VND30 trillion in 2013 and the profit of VND500 billion, which are nearly the same as 2012’s targets.

Stop cement projects?

The Vietnam Cement Association has proposed to reconsider some projects which it believes unfeasible and unsuitable to the cement industry development program.

Huynh said that the 9 inverter furnace cement plants with the designed capacity of 2,500 tons of clinker per day, slated for the 2016-2030, utilizing medium technologies, should not be implemented in the current conditions. The projects, if implemented, would consume much energy, have low labor productivity and cause the environment pollution.

However, Huynh has admitted that it would be not easy to put a brake on the cement projects, which are now at the “launching pad” already.

Investors may accept to stop the project implementation if they find the projects unfeasible. However, this may not be accepted by local authorities.

In general, licenses were granted to investors after the site clearance finished. As such, if the local authorities allow stopping the projects, they would have to pay back money to the investors. Meanwhile, investors don’t know how to deal with the projects, since it’s difficult to transfer the projects, especially the small scaled ones, to others.

Vu Phong