Construction Material Producers Fraught with Hardships

Frozen real estate market and delayed construction projects as a consequence of capital shortage are primary reasons for the current decline of construction material market. Poor sales are piling up inventories while expenses like input, power and coal prices have soared since the start of this year and lending interest rates remain high. Many companies have to scale down operations to seek a way out. Companies with a large amount of inventories are forced to halt production, even go to the wall.

 

Inventory index of construction material companies keeps rising. In the first five months of this year, the cement industry produced some 19 million tonnes, down 16.8 percent year on year while it sold only 18.5 million tonnes, down 10.6 percent. Shrinking cement consumption plus stockpiles in 2011 pushed cement stocks to 3 million tonnes (valued at VND3,000 billion) at the end of May.

 

Ceramics industry is in the same situation as inventories mount to 20 percent with over 40 million square metres of ceramic tiles and over 1 million tiles. Although producers have adopted all measures to reduce costs like layoffs and downsizing production but they apparently immediate, not long-term and sustainable, measures.

 

The performance of unfired construction materials and glass is affected by subjective interest of consumers. As unfired construction materials, typically lightweight and highly durable, remain quite new to Vietnamese consumers, they thus prefer traditional items. For that reason, light concrete brick factories are running at some 30 percent of designed capacity. Construction glass is facing stiff competition from imported products, mostly from China, with more grades and nicer designs. Like cement and ceramics manufacturers, many enterprises in these two industries had to stop production because of rising losses.

 

Before difficulties of construction material industry, the Vietnam Association for Building Materials and concerned businesses organised meetings to review production and business situations and propose the Government, ministries and related organs to issue support policies for troubled businesses to live through the tough time.

According to the association’s recommendations sent to the Prime Minister, competent ministries and agencies must direct localities to implement the Resolution 13/NQ-CP on a number of solutions to resolve problems against businesses and support the market, issued by the Government on May 10, 2012, while stepping up the construction of infrastructure like roads, yards and industrial zones to help construction material firms to sell products.

 

Dr Tran Van Huynh, Chairman of the Vietnam Association for Building Materials, said: The government needs to consider slashing VAT on building materials to 5 percent from 10 percent right in 2012 to stimulate consumption, help businesses clear inventories, have funds for reinvestment and repay bank loans. It should urge banks to restructure corporate debts to help borrowers reduce bad debts and lower interest rates to below 12 percent per annum and loosen borrowing conditions for companies in need of capital for continued production and business.

 

The association proposed restructuring cement industry, adjusting cement industry development strategy, providing suitable financial supports for investment projects, utilising heat sources in the production process to generate electricity. Indeed, some cement plants have followed these methods but the number remains small.

To promote the development of non-baked building materials in place of fired clay bricks, the Ministry of Construction must stepping up trade promotion, help construction material producers to boost exports while preventing illegal imports and trade frauds. Besides, according to the association, the Ministry of Industry and Trade and the Ministry of Science and Technology needs to accelerate researching and manufacturing of equipment for building material industry, synchronising technologies of production factories, etc as well as researching and manufacturing of equipment for production of unfired building materials, stimulate domestic demand for locally made products. The Ministry of Finance considers exempting corporate income tax for new producers in the first five years of production to compete with imported products.