Building Materials: Unmarketable

Although this is a construction season in Vietnam, traders of construction materials are on the knife’s edge because of tumbling sales, particularly steel consumption.

 

Mr Pham Chi Cuong, Chairman of the Vietnam Steel Association (VSA), said total steel sales in the year to date dropped nearly 10 percent from a year earlier. Steel sales in Vietnam are estimated to decline 7.69 percent in 2011. According to the VSA, steel prices have been reduced by VND200,000 - 300,000 per tonne to some VND15 million per tonne, excluding VAT, while steel ingot prices are above VND14 million per tonne. For steelmakers to break even, selling prices would have been at VND15.5 million per tonne. In addition, with high interest rates as now, hardly any steelmakers can pay off debts or borrow more capital. A profit ratio of 10 percent fails to offset interest rates of 20 percent.

 

He predicted that if this situation continues for the next three months, all steel producers will incur losses. Although no companies have filed for bankruptcy, some have reportedly suspended operations. At a recent shareholder meeting, Van Loi Steel Company announced its intention to offer steel production facilities for sale. Only powerful manufacturers like the Vietnam Steel Corporation (VNSteel) or Hoa Phat Group Joint Stock Company have enough resources and capital to operate well, while smaller ones like Van Loi and Dinh Vu have moderated operations because of input shortage.

 

Slow sales have engendered unfair competition. Mr Cuong said some companies are reportedly dumping their products, although they have to suffer more losses. As the construction market shrinks, lower prices fail to draw in sales and some companies resort to unfair competition.

 

Mr Nghiem Xuan Da, Deputy General Director of Vietnam Steel Corporation, said his corporation’s steel sales slid 2.7 percent year on year in the first 10 months of 2011, led by construction steel with a 6.7 percent slump. Up to 50 percent of VNSteel member companies fulfilled 60 percent of full-year production plans in the first 10 months. Many had to cut production plans in 2011 and three reported losses.

 

Mr Tran Tuan Duong, General Director of Hoa Phat Group Joint Stock Company, anticipated long-term hardship for the steel industry. The shrinking demand may lead to oversupply. Thus, according to Mr Duong, it is necessary to cut output to match new market demand. Hoa Phat Group is the second largest steelmaker in Vietnam, but it is currently running at 80 percent of capacity. Production moderation will help reduce inventories, energy costs and finance.

 

Mr Hoang Van Tong, President of Thai Nguyen Steel Company, added that sales have shed 29 - 30 percent. “We are forced to cut costs, saving VND150 billion in the year to date,” he said.

 

The same situation is also happening in the cement market. The Vietnam Cement Industry Corporation (Vicem) now has some 2 million tonnes of cement and clinker stockpiled. However, unlike price movements in the steel market, cement prices have gained 5 percent compared with the previous quarter. Particularly, Holcim cement prices rose to VND89,000 a bag from VND86,000 in the previous quarter.

 

Mr Le Van Chung, President of the Board of Directors of the Vietnam Cement Industry Corporation, forecast cement sales will reach 50 million tonnes in 2011, a decrease of 4 million tonnes from the previous year. Input costs have risen at a double-digit rate. Coal price leaped 41 percent, electricity costs climbed 15 percent, package prices went up 25 percent, and borrowing costs were exorbitant while inventories were on the rise and sales were very slow.

 

Other building materials such as bricks, sand and stone have the same fate due to slow sales. According to statistics released by the ceramics industry, tile inventories have reached more than 30 million square metres. Glass remains unmarketable, although prices have dropped more than 40 percent from the previous quarter and inventories are expected to more than double in 2010. According to Mr Nguyen Quang Vinh, General Director of City Construction Company (Citicons), selling prices should have increased because of higher input prices. Unfortunately, excessive inventories forced producers to sell to take back capital for production. As a result, prices slid 5 - 7 percent.

 

“My company signed a construction contract in June 2011 but has not received any new one since then. Some projects are behind schedule because investors do not have enough capital. Other companies are also in the same situation,” said Mr Vinh.