Cement companies continue to incur losses on excess supply

At the end of the first three months of 2024, Ha Tien Cement Joint Stock Company (HoSE: HT1) recorded net revenues of approximately 1,585 billion VND, a more than 12.2% decrease from the same time the previous year. In the first quarter, the company reported a net operating loss of over 23 billion VND and a post-tax loss of more than 24 billion.

This Southern region's main cement company is facing substantial product sales challenges, with a 19.4% decline in 2023. The amount of cement sold in the first quarter of 2024 fell by 6.43% compared to the same period in 2023. If the situation does not improve in the next quarters, Vicem Ha Tien may incur losses this year.

Despite worse business outcomes, HT1 retained its market share and made a profit, but other private cement producers lost money. The company's gross margin was 6.9%, up 2.4 percentage points from the same time previous year.

Along with HT1, several other big cement businesses announced losses in the first quarter of 2024. For example, Bim Son Cement Joint Stock Company (HNX: BCC) reported net revenues of 690 billion VND, a 19% decline from the first quarter of 2023, and a post-tax loss of over 50 billion VND, compared to a loss of 48.6 billion VND in the same time the previous year. This is the company's seventh straight quarter of losses since the third quarter of 2022.

The business stated that cement supply continues to considerably exceed demand, resulting in more harsh competition, with many companies continuing to restrict production capacity or shut down kilns.

According to BCC, Vietnam's cement export volume in 2024 will most likely remain flat compared to 2023 (about 20.5 million tons, a 1.5% rise over 2023) owing to competition from suppliers in China, Turkey, and other regional nations.

At the same time, the cement industry's projection remains problematic due to increased raw material supply and costs. Meanwhile, demand for bagged cement is steadily dropping in comparison to bulk cement, reducing the company's competitive edge and brand value and having a substantial influence on production and business effectiveness.

Vicem But Son Cement Joint Stock Company (HNX: BTS) saw an 18.34% decline in cement consumption volume in the first quarter compared to the same period in 2023, falling from over 666,589 tons to more than 544,285 tons. As a consequence, the company's net sales revenue in the first quarter of 2024 decreased by 21.1% to 515 billion VND. After subtracting expenses, BTS had a net loss of 55.5 billion VND.

BTS also stated that domestic cement consumption in 2024 is unlikely to increase much. Specifically, cement supply continues to rise in comparison to demand, with several new cement production lines set to begin operations, including Vissai Dai Duong 2 and Xuan Son cement, bringing total cement supply to around 122.5 million tons, while domestic demand is expected to be only about 59.2 million tons, up about 5% from 2023.

In addition, the cost of raw materials for cement production remains high, and the change in demand from bagged to bulk cement continues to climb, diminishing cement manufacturing businesses' production and business effectiveness because the brand value is mostly connected with bagged cement.

Furthermore, in the first quarter of 2024, several additional cement firms announced financial losses. Vicem Hoang Mai Cement Joint Stock Company (HNX: HOM) lost 5.3 billion VND; Vicem Hai Van Cement Joint Stock Company (HoSE: HVN) lost 20 billion VND; and Vicem Quan Trieu Cement - VVMI (UpCOM: CQT) lost 6.3 billion VND.

According to General Statistics Office statistics, in the first quarter of 2024, the cement sector exported around 7.9 million tons of product, earning 298 million USD, with the volume being constant from the previous year but the value declining by 11.7%. Notably, the decline in shipments of this commodity has persisted into the third year.

The reason for the considerable loss in cement exports in the first quarter of 2024 is a decrease in imports from China, as the real estate industry there shows no indications of recovery, and export prices have also fallen significantly. Furthermore, the Philippine market maintains protectionist laws (anti-dumping charges on cement imports from Vietnam).

In addition, the price of exported cement and clinker has been low since the end of 2022. According to firms, the average export price in 2023 was roughly 42.4 USD/ton, down about 3% from the previous year.

According to the Vietnam Cement Association (VNCA), cement and clinker exports in 2024 will continue to face challenges due to China's unrecovered real estate market, and a surplus of Chinese cement is expected to compete with Vietnamese cement in export markets such as the Philippines, Central America, and South Africa.

Meanwhile, in 2024, domestic cement output is likely to surpass demand, with the domestic market using around 60-62 million tons. As a result, corporations continue to promote export routes in order to solve the approximately 30 million-ton oversupply.

To make things easier for businesses, on May 14th, VNCA issued a letter to the Government Office recommending changes to Decree 26/2023/ND-CP on the application of a 0% export tax rate for cement clinker. According to the VNCA, cement clinker is not included by Article 5, Clause 23 of the Value-Added Tax Law, which states that "exported products are natural resources, minerals harvested unprocessed as prescribed by the government."

Clinker is a product generated after burning a finely powdered mixture of limestone, clay, and various additives at a temperature of roughly 1,450-1,500°C, according to Document No. 3242/BXD-VLXD dated December 24, 2018, provided to the Ministry of Finance by the Ministry of Construction. Thus, clinker is not a mineral resource. Thus, cement clinker is exempt from the restrictions of Clause 23 of Article 3 of the Value-Added Tax Law. However, exported cement clinker is now listed in the category of items subject to a 10% export tax rate (Appendix 1. Export Tax Schedule according to the commodity list subject to tax, Decree 26/2023/ND-CP), which contradicts the Value-Added Tax Law and Decree 146/2017/ND-CP.

The Vietnam Cement Association and cement manufacturing businesses are requesting the Government Office to examine the Association's suggestions for a 0% export tax rate on cement clinker in light of the present challenges faced by the cement sector.