In 2022, the profits of cement companies will decrease due to increased production costs. Photo: ST

2022: Unsatisfactory profit

According to the business report of the Vietnam Cement Corporation (VICEM), in 2022, total revenue is estimated at 39,453 billion VND, reaching 95.5% of the 2022 plan and increasing by 16.6% compared to 2021. Profit before tax (excluding the exchange rate difference at the end of the period) was estimated at VND 1,532.3 billion, reaching 89.8% of the 2022 plan and down 30.5% (equivalent to a decrease of VND 671.9 billion) compared to the previous year. 2021.

The reason is due to the high price of raw materials and coal. VICEM said that the supply of coal for cement production is lacking in terms of quantity, quality, type and sudden increase in price. Particularly, the high price of coal has increased the cost of coal in the cost of cement production of VICEM in 2022 by about VND 4,000 billion compared to 2021.

Besides, the impact on the export market, the decrease in cement demand, the influence of low calorific value coal and other objective and subjective factors have pushed Ha Long Cement Joint Stock Company - VICEM's member companies have suffered heavy loss in production and business results and are the main factor that causes VICEM not to complete its profit plan in 2022.

VICEM member units must add discounts and promotions to keep output and market share, therefore, the increase in the price earned is not enough to offset the impact of the increase in input costs, affecting the production and business results in 2022 of VICEM's member units.

According to the cement industry update report of SSI Securities Company, in 2022, exports of cement and clinker decreased by 29% over the same period in 2021 with export volume reaching 31.7 million tons. The drop in export output is due to China's stagnant real estate market and the country's Zero-Covid policy. This is the market that accounts for 54% of VICEM's total export volume. Because of these difficulties, the profits of cement companies in 2022 will decrease. According to SSI, cement production costs will increase significantly in 2022 due to rising coal prices, but cement prices only inched up slightly (5-10%) due to fierce competition and weak consumption. Therefore, gross profit margin of cement manufacturing companies remains low.

Building a long-term business strategy

In 2023, although the situation is bleak, businesses expect to be brighter in the second half of the year, including lower input material prices, reopening of China's economy, and accelerating economic growth. Infrastructure development will boost global demand for steel and cement. SSI forecasts that domestic cement consumption will be flat compared to 2022 due to the still weak real estate market.

One positive point is that the public investment plan in 2023 is estimated to increase by 25% year-on-year in value, acting as a driving force to support domestic cement consumption.

According to experts, the increase in output will help Vietnamese cement companies improve plant operating efficiency, thereby helping to increase profit margin in the coming time (thanks to reducing depreciation costs per product).

According to the Department of Building Materials (Ministry of Construction), it is expected that the cement consumption demand of the whole industry in 2023 will be about 100-105 million tons (expected to increase 7-10% compared to 2022); domestic consumption about 60-65 million tons and export about 35-40 million tons.

With this consumption and export volume, 86 cement production lines across the country (with a total capacity of 108.54 million tons) completely meet the demand for 2023 (both domestic and export markets).

Representatives of Long Son Cement Company forecast that the business situation in 2023 is difficult, so the company's goal is to continue to maintain stable production and expand domestic and export markets. Therefore, this enterprise has implemented maintenance of the entire factory equipment line to operate stably and economically, and at the same time signed contracts with domestic and foreign distributors.

However, businesses need to pay attention to cement export activities this year, because currently countries importing cement and clinker continue to implement many protectionist policies for domestic cement production, applying technical barriers, and high freight rates cause difficulties for businesses.

In addition, since January 1, 2023, Vietnam adjusted the export tax on clinker products to increase from 5% to 10% in order to limit   exports. Since October 2023, steel, cement, fertilizer, aluminum, electricity and hydrogen products entering Europe will be subject to the European carbon border adjustment policy.

According to experts and businesses, with these regulations, if cement manufacturers want to export to this market, in production they must consider reducing carbon emissions, towards green and sustainable production. Therefore, cement businesses need to grasp market developments to promptly adjust production activities, increase or decrease supply to keep selling prices stable; especially have a long-term strategy for production and business activities.