Building Materials Market in Vietnam

Building Materials Market in VietnamThis part of the research provides a deeper view on Vietnam construction materials effort with concent symmetryn on the recent business situation of construction and create materials food market. Information about building materials firms is too provided.1.1 Construction and factual kingdomVietnams economy has gone through a struggling period of insubstantial credit expansion, because of the decelerated development in the banking system characterized by non-performing loans (NPLs) and a shoes market slump. The property market in Vietnam is currently disheartened, disputing with market conditions including a lack of capital resources return resulted in construction companies being unable to realized projects, tour purchasers argon finding it ch bothenging to afford property because of a lack of access to loans. As a result, many construction projects, housing, apartments, etc. are being unfinished .There are also signs of distressed proper ty assets in the country. Therefore the construction industrys outgrowth rate declined from 19.7% in 2011 to 6.5% in 2012, although the industry reached a Compound Annual Growth Rate (CAGR) of 19% from 2008 to 2012 (Timetric, 2013).The construction market in Vietnam is expected to be higher than mean(a) growth rates until the end of the decade (CB Richard Ellis Group, 2008 2013). Construction spending was nigh US$18.6 one thousand million in 2012, which accounted for or so under 20% of the countrys GDP. This spending is estimated to grow by nearly 7% per annual over the next 5 years (Savills, 2013). In Vietnam construction market, the residential sector do up the largest proportion of more than half of list construction spending in 2012, followed by the infrastructure sector. The non-residential market constituted incisively about 10% of primitive construction spending in 2012. (IHS Inc., 2012)Currently, a mismatch between impart and demand in the Vietnamese property m arket has happened. Demand perseveres for affordable housing, office staff but construction developers of mid to high end assets are in difficulty to attract buyers or rental consumers. This put off showed the existing and the new supply for office market in Vietnam.Chart 10 Existing and new office supply.Unit sqm (000s) (Savills, 2013)In Cushman Wakefield Market outlook 2013, it stated that current average rents for Grade A in Vietnam have decreased by 46% and 41% in HCMC and Hanoi respectively, contrasts to 2008. Meanwhile the heart value of inventory in housing projects was estimated at more than VND125 trillion (US$6 billion) in 55 cities and provinces in May 2013. High real estate prices and over-supply, which have rocketed due to defective activities at the peak of the market, are serious problems. They resulted in rental rates declined during the recent years with average rents throughout all grades falling by approximately 2% quarter-on-quarter (DTZ Vietnam, 2012). Con tractors are holding on a lot of purchased real estate products at relatively high prices and are un willinging to sell at a loss price throughout the current downward trend. In many reports were submitted to construction firms and Vietnamese government, they all advised to address the over-supply issue, adjustments to the apartment sizing and level of development are necessary.In Asia Construction Outlook by AECOM in 2013, they forecasted that all major sectors in Vietnam would grow over the next five years at similar rates. Specifically, total construction proceeds of Vietnam would be at around $18.5 billion till 2018, with the growth rate of about 6.7%. al-Qaida investment, much(prenominal) as highways, rail and ports, will be a main growth area until the end of the decade. However, the government is likely to have limited competency for funding much of this because it is likely to be constrained by public debt levels. As a result Vietnam is set to offer significant opportuni ties through in camera financed infrastructure projects, with the funding likely to take the form of foreign direct investment or PPP joint ventures. Geographically, the large amount of the investment will be focused on Hanoi, Ho Chi Minh and the North-South corridor in between.1.2 Building materials market1.2.1 CharacteristicsThe companiesIn Vietnam building materials industry, almost top manufacturers are state-owned. See the control board 3 and 4 below for the top building materials firm in Vietnam according to VNR500Table 3 Top 12 biggest building materials firms in Vietnam out-and-out(a) caller-outTypeProducts1Ha Tien cementumumum JSCState-owned cement2Viglacera CorporationState-ownedTiles, Building Glass, Sanitary wares, AAC, bricks3Cement Holcim VietnamJoint VentureCement4Nghi Son CementJoint VentureCement5Chinfon Cement CorporationJoint VentureCement6Vincem Hoang Thach Co. LtdState-ownedCement7Vincem Bim Son JSCState-ownedCement8Vissai GroupPrivateCement9Phuc Son Cement J SCJoint VentureCement10FICO JSCState-ownedCement11Phu Tai JSCPrivateStone, Tiles, Wood12Vincem Hoang Mai JSCState-ownedCementNote that the joint venture companies above are among state-owned companies and foreign investors.Table 4 Top 12 biggest common soldier building materials companies in VietnamRankCompanyProductsNote1Vissai GroupCement2Phu Tai JSCStone, Tiles, Wood3Quangninh construction and cement JSCCementSub-company of SOE4Prime Vinh Phuc CompanyTiles5Vinh Tuong Industrial CorporationCeiling, drywall grid6Song Gianh Cement Co. Ltd.CementSub-company of SOE7Viglacera Ha desire JSCTerracotta tilesSub-company of SOE8DIC Intraco JSCSteels, AAC, Wood, Roof tiles, KlinkersSub-company of SOE9Le Phan Construction Co LtdConcrete10VicostoneStone11Prime Dai Viet JSCTiles12Tay Do Cement JSCCementSub-company of SOEAs you can see from the above tables, the state-owned building materials companies account for large proportion in the industry. They also are the dominating factor in private sector, it has created bad business environment in Vietnam due to incentives that SOEs have received. Therefore, they do not have very active municipal rivals who put pressure on them to innovate.Regarding to types of products, it is seen that cement is the top priority in the industry. 10 out of 12 biggest manufacturers are producing cement and cement related products. This sector has contributed a large ratio in export activities of Vietnam (see table 9). However, nowadays, tiles sector attracts more attention of government because of this sectors importance on the global market. Vietnam ceramic tiles sector was graded in the top ten countries of manufacturing and exportation tiles (Stock, 2010).1.2.2 Domestic performanceAs stated in above part, all 3 main sectors of construction and real estate (residential, infrastructure and non-residential) has been struggling in the ability to complete their projects. Not only that, the economic crisis led to high inflation, tightened cred it expansion, and bring down spending of people. It made people less likely to buy, or rent a new house or even fix or upgrade their house. Therefore, the building materials market of Vietnam has also suffered a serious downward trend in development.Regarding ceramic market, according to reports and articles from Vietnam building ceramic association (VBCA) in 2013, the amount of manufactured tiles was slightly under 70% of total subject, estimated around 289.8 gazillion square cadency. This number is much lower than 375 million square meter in 2010 when Vietnam was ranked the fifth on top manufacturing countries over the cosmea with 3.9% on the world production (Stock, 2010). Stock of tiles that was difficult to clear, was approximately 50 days of production, about 40 million square meter or 112.800.000 USD. On the other hand, sanitary ware products were produced nearly 70% of total capacity, assessed at 9 million units, and number of units in inventory hit an average of 50-6 0 days of production, about 1.2 million units or approximately 28.200.000 USD.Table 5 descend consumption for tiles and sanitary ware of Vietnamese manufacturers.200720082009201020112012Total domestic consumption volumeTiles (million sqm)150203.65297.5290272246,9Sanitary ware (million unit)7.57.89.09.79.38.5(Vietnam Ceramic Business Association, 2013)As we can see from Table 5, the volume of domestic consumption for tiles and sanitary ware started to decrease significantly from 2011, since Vietnam stand in its own recession. Before this year, the world economic crisis obviously had no negative personal effects on the local market because the amount kept raising until 2010.Table 6 Total tiles (ceramic and porcelain) in stock of slightly Vietnamese manufacturersNo.CompanyMax Capacity (million sqm/ year)Actual Capacity (million sqm)In Stock (million sqm)1Mikado1.51.070.12Viet Y1.81.300.253Granite Trung Do3.52.430.44Prime99745.55Catalan1510.51.36CMC540.37Vinh Thang96.50.68Vitaly4.520. 39Thach Ban21.20.210Toko1510.5211Viglacera25202(Vietnam Ministry of Construction, 2013)From Table 6, it is clearly seen that those 11 manufacturer of tiles in Vietnam did not reach the maximum sucker capacity of them, and also had a large quantity of tiles in stock which is very difficult to clear.Regard to building fruitcake products, Vietnam has 7 companies producing over-size building glass with maximum capacity is over 150 million square meter. However, in 2012, the goods in stock was approximately more than 60 million square meter of standard glass. It slightly equaled 4 month capacity of all manufacturers. Moreover, in that 60 million, there was 57 million meter of float glass, respectively 5 month production output. Besides that, imported glass from China and ASEAN countries with lower price also impacted on Vietnamese firms consumption. Therefore, some factories had to temporary stop producing for a while, for instance, Viglacera Dap Cau glass mill was closedownd from mi ddle 2012 to September 2013 due to oversupply.In 2013, consumption of bricks and roofing tiles experienced a 70% of overall capacity. The actual produced quantity of brick was estimated of 17 billion units, but the purchased quantity just reached 14 billion bricks, about 80%.Table 7 Bricks manufacturing capacity and consumption in 2012.ProductMaximum CapacityActual outputConsumptionFactory standard brick14 billion12 billion10 billionManual brick6 billion5 billion4 billionTotal20 billion17 billion14 billionUnit brick. (Vietnam Ministry of Construction, 2013)A new kind of brick (or block that is non-fired) which was started to produce in Vietnam not long ago, is Autoclave Aerated Concrete (AAC) blocks. It also has been struggling with output clearance because of low demand in construction, especially no new projects tend to implement this kind of brick. Beside the unstable quality, lack of synchronous building solvent also one of the stand-out issues. Therefore, there was not many co nstruction contractors in Vietnam using this building material. As a result, consumption of AAC is limited, it reached just around 60-80% of total capacity and some fresh-built factories are facing perfunctory production or threat of bankruptcy. However, according to non-fired products development program of the government, the prime minister signed the finis that AAC will replace 30-40% traditional bricks, and it is mandatory for building higher than 8 floors. So, with this policy the future of AAC in Vietnam is valuated as brightest among other materials.Table 8 Vietnam AAC Factories production and consumption in 2012.No.CompanyLocation in VietnamCapacity (m3/year)Actual Consumption (m3)Total 9 factories1.500.0001Viglacera AACBac Ninh200.000150.0002VinemaHa Nam100.00060.0003Song Da Cao CuongHai Duong200.000100.0004Phuc SonHoa Binh150.00090.0005An ThaiPhu Tho300.000240.0006Truong HaiHai Duong200.000110.0007Vinh DucLam Dong100.00050.0008Vuong HaiDong Nai100.00060.0009Ky Nguyen E-bl ock huge An150.00070.000(Vietnam Ministry of Construction, 2013)Concerning cement market in Vietnam, it has been even worse than other materials. Due to government policy on lowering inflation, stabilizing market price and macroeconomic, from 2008 to present, cement price just developmentd about 30% while stimulant materials, coal price raised 4 times. In addition, electricity, fuel price also rocketed continuously. Moreover, from 2010, the exchange rate between VND-USD rose and the access to banking credit was difficult, so cost over cement price jumped up 20-30%. According to Vietnam Cement Association, total cost of manufacturing is 60% of selling price, exchange rate increased, loan interest is about 20%/year, almost all cement companies in 2011, 2012, 2013 suffered losings. For example, Cam Pha and Ha recollective cement factory had accumulated debt of 1200 billion VND (about 56 million USD) and 1090 billion VND (51 million USD) respectively.Reports of Vietnam Cement Associa tion state 48 million tons of cement was manufactured in 2012, the number decreased 5% compared to that of 2011. Domestic consumption recorded a figure of 40 million tons, around 18% of decline. The knowing capacity is approximately 70 million tons, but the actual production just hit 52 million tons (72% of capacity).Vietnam steel and metal industry has stayed in the same situation. However, the troubles are not only oversupply caused by frozen construction sector, but also the limited capital, numerous debt from loans, raw input ingredients relied on importing sources, out-of-date production technology. All of those reasons led to weak competitive strength on its own home-market. According to Vietnam steel associations 2013 report, about 30% of Vietnam steel manufacturers were using old technology, more than 40% with average technology, and just less than 30% of steel firms had new technology for production and management. Moreover, 2013 growth rate was 7% total capacity reached 1 0 million tons, 8.5% y-o-y growth but the actual domestic consumption poorly hit 1/3 of capacity.In summary, Vietnamese building materials companies have been endeavoring to find solutions to overcome domestic crash since crisis happened. Although the government provided some supporting actions for the sector since 2011 and then formalize $3.3 billion economic package in early 2014 (Dieu Tu Uyen, 2014), the building materials industry seems to be difficult to recover. In 2013, there were 10077 construction and real estate companies went bankruptcy, while other firms were struggling in tackling the oversupply issue.1.2.3 Export international business situationDue to the difficulties of local market, many companies have tried to enhance exporting activity. However, the majority of products is still mainly used for consuming inside the country and exports profit could not cover the losses of domestic sale. It happened to all kind of building materials.In general, export turnover of building materials in 2011 hit slightly over 766 million USD, that was an 86.45% increase compare to 2010. See the table belowTable 9 Export turnover of building materials in 2011 and percentage of increase.NoType of building materialTurnover (thousand USD)Percentage of increase (%)201020111Building Stone105.646131.71524.672Tiles109.656185.14468.843Sanitary ware46.48164.34338.424Glass40.13549.02722.155Clinker and cement96.887319.101229.356Raw materials12.02716.68238.70Total410.832766.01286.45Regarding building stones, top ten companies accounted for more than 66% of total exporting revenue of stone. The top consuming markets of Vietnam stone are Belgium (29.21%), Australia (13.38%) and United States (9%).Referring to ceramic products, just about 15% of total manufactured goods was exported. Top ten companies constituted 56% of total revenue, and the biggest markets are Laos, Taiwan, Thailand, Cambodia, etc. Besides that, tiles and sanitary ware have been imported with lower price th an Vietnamese firms, most of them come from China. It has pushed domestic manufacturers to face high pressures and challenges in selling products in the country market.Table 10 Import and Export situation of tiles and sanitary of Vietnam.Consumption200720082009201020112012Export (million USD)Tiles77.1680.8869.57109.66185.14190Sanitary ware35.741.337.446.564.365Import (million USD)Tiles33.6522.470.1695.546.446Sanitary ware4.26.86.78.0712.5412(Vietnam Ceramic Business Association, 2013)According to top exporting countries of ceramic tiles, Vietnam was ranked the 12th with 28 million square meter exported in 2010, that accounted for 0.3% and 1.5% on the world consumption and the world export respectively (Stock, 2010). However, in terms of money, the total value of exported tiles of Vietnam is much lower than Thailand and Malaysia (not mentioned China here). The Vietnam Association for Building materials A said that the reason is because the competitive strength of Vietnamese firms is lower than Thailand, Malaysia, and China.Regarding to glass, total value of glass and glass related products was $0.54 billion in 2012. It was a 46.7% rise compare to 2011. However, because of the domestic downturn, this increase could not cover the loss in glass sector. For example, Mr. Nguyen Anh Tuan said in the interview that Viglacera Corporation still had to close their glass factory in the north for more than 12 months in spite of having foreign customers.About cement sector, in the last 10 years, Vietnam cement generally had the lower selling price than other countries in ASEAN. It stayed at around $50/ton, while the ASEAN average cement price fluctuated from $65 to $75/ton (Vietnam depicted object Cement Association, 2013). In 2012, exporting volume levelled up to 1.7 million tons of cement and 7.3 million tons of clinker. After that, in 2013, total cement and clinker exported increased to nearly 14 million tons. This was a big leap in Vietnam cement industry on internatio nal business.It is clearly seen that building materials products such as tiles, sanitary ware, glass, cement, or steel have had a stable increase in export. However, these improvements could not help to overcome the downward trend in domestic market. According to building materials business community, the ASEAN market is considered as similarities and has strong points for Vietnamese companies to expand businesses. So, most of building materials manufacturers in Vietnam has focused mostly on this areas. The imposed tax for goods from Vietnam is 0%, but the technical barrier and quality is highly required. Especially, ASEAN countries also strictly control and apply the anti-dumping policies. Together with the competition with China, it makes the profits of exports stay relatively small.However, if Vietnam succeeds in signing the Trans-Pacific Partnership agreement, Vietnamese firms will have greater chances to expand their business into different nations outside ASEAN. Currently, Vie tnam companies are paid import tax for members of TPP such as Mexico 25%, Chile 6%, Peru 5%, etc. Therefore, when Vietnam joins TPP, import tax equals 0%, companies will have more incentives to exploit these potential markets. This also true for other trade agreements Vietnam is negotiating.1.3 ConclusionThe financial crisis did have an extremely negative impact on construction and building materials industry. Factories had to cut down their capacity around 30% in general. The goods in stock increased and was difficult to sell, especially for tiles sector. Many companies went bankrupt, some have to close their factories, and many of them suffered losses.The export volume and value of building materials products have kept rising recent years. However it can not cover the huge losses in domestic market.On the other hand, the state-owned enterprises have dominated the sector over the private companies.