Construction Ceramics Suffering Overproduction from Shrinking Consumption

The supply of construction ceramics has exceeded the demand by 41.6 per cent, triggering enormous hardships for related enterprises, according to the statistics from the Vietnam Construction Materials Association.

 

OverproductionAccording to construction ceramic production companies, the price of almost all construction ceramics like tiles and sanitary ceramics, are down 20-30 per cent. The consumption in 2006 is estimated at less than 130 million square metres and 4.5 million product units, equalling 60-70 per cent of the current production capacity. This is a sign of overproduction of the construction ceramic industry.
The core reason for this situation is attributed to the freezing real estate market and the escalating price of inputs in the context of falling selling prices due to excessive supplies. In addition, the construction of new production factories makes the situation worse and enterprises are running at 70 per cent capacities. Under this context, if there is no new solution while production is mainly serving the domestic market, a massive bankruptcy of this industry is inevitable, analyses of experts said.
The construction ceramic industry comprises of two main sectors: tiles and sanitary china. Vietnam now has 53 tile factories with a combined annual capacity of 170 million square metres. However, several leading enterprises such as Viglacera, Prime Group and Dong Tam are manufacturing more than 100 million square metres while the others have small production capacities.

 

SolutionsTo solve the difficulty, the Vietnam Construction Materials Association has sent a document to the Government and the National Assembly to require adjustments to the development strategy of the construction ceramic industry. The association asks for the temporary stop of licensing new tile investment and production expansion projects to match the demand and the supply.

Many enterprises have asked competent bodies to reorganise the construction ceramic production sector on the direction of promoting internal forces of giant firms and speeding up equitisation. At the same time, the State should also sell State-run ceramic enterprises at the market price to the private sector.

The freezing real estate market also has big negative impacts on the construction ceramic market. Therefore, the solution to the ceramic industry also means de-freezing the real estate market. The cause of the freezing real estate market is the unreasonably high land price, which prompts potential buyers to delay transactions to minimise risks. Without positive improvements for the real estate market, the construction ceramic industry will be sunk down. 

The demand in the domestic market is far behind the growth of production and many enterprises have sought export markets. One of the most notable highlights of the ceramic sector is the export of a $16.675-million tile batch of Prime Group to South Korea’s CN International Ltd in April 2006. However, Vietnamese products must compete strongly with those of China and regional countries. China manufactures two billion square metres of tiles each year while the price is equal to 50-70 per cent of the same Vietnamese product.