Building Materials Market in Vietnam

Building Materials Market in VietnamThis fibre of the research provides a deeper view on Vietnam building materials assiduity with concentration on the recent crease situation of anatomical structure and building materials market. Information rough building materials firms is as well as provided.1.1 social organization and real demesneVietnams economy has gone through a struggling period of insubstantial credit expansion, because of the decelerated emergence in the banking system characterized by non-performing loans (NPLs) and a property market slump. The property market in Vietnam is surely disheartened, disputing with market conditions including a lack of capital resources set out resulted in grammatical construction companies being unable to concluded projects, date purchasers ar finding it ch everyenging to afford property because of a lack of admission to loans. As a result, many construction projects, housing, apartments, etc. are being unfinished .There are also signs of upset property assets in the country. Therefore the construction assiduitys growth 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 average growth rates until the fire of the decade (CB Richard Ellis Group, 2008 2013). Construction pass was roughly US$18.6 one million million million in 2012, which accounted for passably under 20% of the countrys GDP. This outgo is estimated to grow by n archaeozoic 7% per annual everyplace the next five years (Savills, 2013). In Vietnam construction market, the residential sector do up the largest proportion of to a greater extent than half of entireness construction sp demiseing in 2012, followed by the infrastructure sector. The non-residential market constituted however about 10% of add construction spending in 2012. (IHS Inc., 2012)Currently, a mismatch between put up and demand in the Vietnamese property market has happened. Demand perseveres for affordable housing, office only if construction developers of mid to high end assets are in difficulty to attract buyers or rental consumers. This knock back 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 cast off decreased by 46% and 41% in HCMC and Hanoi respectively, pars to 2008. Meanwhile the contri providede value of inventory in housing projects was estimated at more than than VND125 trillion (US$6 trillion) in 55 cities and provinces in May 2013. gamey real estate prices and over-supply, which have rocketed collectable to speculative activities at the peak of the market, are serious problems. They resulted in rental rates declined during the recent years with average ren ts throughout all grades falling by approximately 2% quarter-on-quarter (DTZ Vietnam, 2012). Contractors are holding on a lot of purchased real estate products at comparatively high prices and are unwilling to sell at a loss price throughout the current downward crook. In many reports were submitted to construction firms and Vietnamese authorities, they all advised to address the over-supply issue, adjustments to the apartment coat 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 output of Vietnam would be at around $18.5 billion till 2018, with the growth rate of about 6.7%. nucleotide investment, such as highways, rail and ports, will be a main growth area until the end of the decade. so far, the government is likely to have limited talent for funding much of this because it is likely to be forced by p ublic debt levels. As a result Vietnam is set to offer significant opportunities through privately financed infrastructure projects, with the funding likely to take the form of foreign direct investment or palatopharyngoplasty joint ventures. Geographically, the large amount of the investment will be focused on Hanoi, Ho khi Minh and the North-South corridor in between.1.2 Building materials market1.2.1 CharacteristicsThe companiesIn Vietnam building materials industry, more or less(prenominal) top manufacturers are state-owned. See the table 3 and 4 below for the top building materials firm in Vietnam according to VNR500Table 3 Top 12 biggest building materials firms in VietnamRank phonerTypeProducts1Ha Tien cementumum JSCState-ownedcementum2Viglacera CorporationState-ownedTiles, Building Glass, Sanitary wares, AAC, bricks3cementum Holcim Vietnam reciprocal VentureCement4Nghi Son CementJoint VentureCement5Chinfon Cement CorporationJoint VentureCement6Vincem Hoang Thach Co. LtdState-ownedCement7Vincem Bim Son JSCState-ownedCement8Vissai Group cliquishCement9Phuc Son Cement JSCJoint VentureCement10FICO JSCState-ownedCement11Phu Tai JSCPrivateStone, Tiles, Wood12Vincem Hoang Mai JSCState-ownedCementNote that the joint venture companies in a higher place are among state-owned companies and foreign investors.Table 4 Top 12 biggest private building materials companies in VietnamRankCompanyProductsNote1Vissai GroupCement2Phu Tai JSCStone, Tiles, Wood3Quangninh construction and cement JSCCementSub-company of SOE4Prime Vinh Phuc CompanyTiles5Vinh Tuong Industrial CorporationCeiling, drywall grid6 phone call Gianh Cement Co. Ltd.CementSub-company of SOE7Viglacera Ha Long 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 m aterials 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 domestic rivals who put pressure on them to innovate. assureing 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 ranked in the top ten countries of manufacturing and exporting 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 susceptibility to complete their projects. Not only that, the economic crisis led to high inflation, tightened credit expansion, and impose spending of people. It made people less likely to buy, or rent a new house or even so 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 condenser, estimated around 289.8 trillion square beat. This number is much let down than 375 jillion square meter in 2010 when Vietnam was ranked the 5th on top manufacturing countries over the gentleman 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 jillion square meter or 112.800.000 USD. On the other hand, sanitary ware products were prod uced nearly 70% of total capacity, assessed at 9 million units, and number of units in inventory hit an average of 50-60 days of production, about 1.2 million units or approximately 28.200.000 USD.Table 5 Total 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 importantly 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 anesthetic market because the amount kept raising until 2010.Table 6 Total tiles (ceramic and porcelain) in stock of both(prenominal) 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 level capacity of them, and also had a large quantity of tiles in stock which is very difficult to clear.Regard to building screwball 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 cadence 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 set out price also impacted on Vietnamese firms consumption. The refore, some factories had to temporary stop producing for a while, for instance, Viglacera Dap Cau glass factory was endingd from middle 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 sterilise Aerated Concrete (AAC) blocks. It also has been struggling with output clearance because of low demand in construction, peculiarly no new projects tend to implement this kind of bric k. Beside the unstable quality, lack of synchronous building ascendent also one of the stand-out issues. Therefore, there was not many construction 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 pro forma production or threat of bankruptcy. However, according to non-fired products development program of the government, the prime minister signed the close 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.Company muddle 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 Duc tend Dong100.00050.0008Vuong HaiDong Nai100.00060.0009Ky Nguyen E-blockLong 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 outgrowthd about 30% while input materials, coal price brocaded 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, al roughly all cement companies in 2011, 2012, 2013 suffered losses. For example, Cam Pha and Ha Long 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 Association said 48 million tons of cement was manufactured in 2012, the number decreased 5% compared to that of 2011. Domestic consumption recorded a intention of 40 million tons, around 18% of decline. The designed 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. solely 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 les s than 30% of steel firms had new technology for production and management. Moreover, 2013 growth rate was 7% total capacity reached 10 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 ratified $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 eat inside the country and exports wi nnings 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 bigges t markets are Laos, Taiwan, Thailand, Cambodia, etc. Besides that, tiles and sanitary ware have been imported with lower price than Vietnamese firms, intimately 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 wonder 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 National Cement Association, 2013). In 2012, exporting volume levelled up to 1.7 million tons of cement and 7.3 million tons of cinder. 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 international 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 set off 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 good 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 agreeme nt, Vietnamese firms will have greater chances to expand their business into different nations outside ASEAN. Currently, Vietnam companies are paying 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 domina ted the sector over the private companies.