Vietnam, the world’s fourth-largest
producer, showed impressive growth in
production from 60mt in 2012 to 78mt last
year. The country has 82 cement
production lines with aggregate capacity of
97.6mt. Since the domestic market is not
big enough to consume all the cement that
is produced, Vietnamese manufacturers
have found outlets in Asian countries such
as the Philippines, Taiwan and Bangladesh
and also in Africa and Latin America. In the
meantime, the Vietnam Cement Association
has given warnings that the country will
“face a glut of 25 to 36mt a year of the
material by 2020 as production completely
outstrips national demand.” Vietnam is
likely to have cement production of 120 to
130mt by 2020 when the local demand will
at the most be 93mt, leaving a big amount
for export.
In any case, taking a long-term view, the
country has set an annual export target of
20 to 35% of the industry’s cement and
clinker capacity by 2030. To ensure that
prices in the domestic market do not come
under much pressure because of
oversupply, the Vietnamese industry has no
alternative but to become an aggressive
exporter. In confirmation, the general
department of Vietnam customs informs
that the country exported 2.9mt of cement
and clinker worth $101.1m in January 2018, up 32.3% in volume and 30.3% in value over
last year’s corresponding month.
Let the significant changes that are now
taking place in the industry be considered.
According to one consultancy, between
now and 2022, globally but excluding China
nearly 420 cement capacity expansion
projects with an aggregate capacity of
580mt are due to be commissioned.
Unless, of course, some of the projects do
not suffer time and cost escalation — the
major bane in developing and also emerging
economies. The capacity in the pipeline
comes under the following heads: (i) 150
greenfield projects will deliver new capacity
of 250mt; (ii) 114 new production lines at
existing operational sites will create fresh
capacity of 220mt; (iii) Capacity of close to
100mt will come by way of commissioning
of 131 grinding projects; (iv) Finally, in the
process of execution of 25 modernization
projects not only will there be migration to
modern power efficient and environment
friendly technology but some additional
capacity will be created.
A noticeable feature of new investments
in cement worldwide is the shifting of focus
from building integrated plants with kiln
lines to setting up grinding plants with
capacities of up to 2mt. Grinding units
offer the advantage of their installation
close to the markets. Building a medium-
size grinding plant will cost around $60 a
tonne. The consultancy says the “trend of
ever increasing kiln lines is coming to an
end.” Most kilns will be of sizes ranging
from 3,000 tonnes a day to 6,000 tonnes a
day and “only a few with capacities larger
than 8,000 tonnes a day are in the pipeline.”
Large global overcapacity of which the
major part is in China and also limited
export possibilities are the factors
influencing investor decision not to seek
bigger and bigger kilns.
The consultancy further says most of
the new projects are located in Africa and
Oceania followed by south Asia and Latin
America. For reasons of cost and
sensitivity to the environment, the US and
Western Europe, including Turkey, are
hosting only a few new cement projects. At
the same time, Europe remains the
principal centre for further development of
cement-related technologies. In the
machinery sector, China is offering
increasing competition to the likes of
FLSmidth of Denmark and Loesche of
Germany.
An Indian industry official says: “That
China, which produced as much as 2.4bn
tonnes of cement in 2017 would have
developed formidable capacity in cement
plant design and engineering and machinery
building was on expected lines. This has
been seen in steel and aluminium too
supported by the size of Chinese
production. China’s rapid emergence in
consultancy and machinery building along
with improvement in quality of its
processes and machinery has put price
pressure on the Western companies.”
Observers notice a great degree of
discipline among cement companies as they
build new capacity. Take the case of China.
Beijing has resolved earlier this year of
shedding more industrial overcapacity,
including cement in a renewed attempt of
supply side reform to usher in high quality economic development. China is sitting on
cement capacity of up to 3.5bn tonnes and
at least 30% of it is surplus. The country’s
National Development and Reforms
Commission (NDRC) earlier said that
cement production was to be cut by 10%,
part of permanently shutting of polluting
and high cost mills. But buoyed by the
success in reducing surplus steel and coal
capacity, NDRC said recently the same
could well happen in cement, meaning going
beyond targeted capacity reduction. Along
with capacity shedding, Beijing will
encourage merger of cement companies to
face the challenges of overproduction,
depressed prices and bloated borrowings.
With huge excess capacity obtaining in
the country and the banks not inclined to
support construction of new mills, some
Chinese cement groups and investors are
involved in building a good number of new
plants elsewhere in the Far East, central
Asia and significantly in Africa. Expectedly,
the Chinese arrival has made the local
groups wary of how the future will unfold
for them. But cement has for long been a
global business with industry leaders
owning plants in several countries. Like LafargeHolcim, created out of the merger
of Lafarge of France and Holcim of
Switzerland in April 2014, operates in 80
countries. Incidentally, LafargeHolcim owns
more than 60mt cement capacity in India
and it is to build a 3.1mt greenfield cement
factory in Rajasthan. Ahead of the merger
Holcim acquired two leading Indian cement
groups Ambuja Cements and ACC and
Lafarge emerged as a major constituent of
the Indian industry by first acquiring the
cement unit of Tata Steel followed by the
one owned by Raymonds and then
expanding their capacity.
An official of Cement Manufacturers
Association in India says: “We are the
world’s second-largest in terms of capacity
and production and the market for the
building material is growing as the country’s
focus is to strengthen infrastructure from
concrete roads to ports and create millions
of housing units. Naturally, foreign groups,
some of them are already here, will always
be contender to buy operating units in
competition with local groups.”
ICRA says Indian cement demand will
grow 5% this financial year to end in March
2019. It, however, gives the warning that profitability and debt metrics of Indian
cement companies may come under
pressure in the coming quarters because of
higher petcoke, coal and diesel prices.
Cement use demands its mixing with sand.
But in a number of Indian major states sand
shortages are negatively impacting cement
sales. But there is hope of rural demand for
cement to improve on the back of the
government promise that minimum
support prices for crops will give farmers at
least 50% more than production cost,
liberal provision of rural credit and forecast
of a normal monsoon three years in a row.
India is an infrastructure deficit country
and to sustain economic growth rate at
7.5% to 8%, it is imperative that major
infrastructure projects are rolled out at
regular short intervals. In fact in
anticipation, cement companies with strong
balance sheets are going ahead with
greenfield and brownfield expansion
programmes. Steelmakers, however, want
the government to pass an order that like
in developed economies, cement and steel
use ratio should be 1:1 and not 4:1. That
will be a negative for the cement industry.