Government holds off cement loans on concerns of oversupply
Government holds off cement loans on concerns of oversupply
The Government is not encouraging more investment in cement projects despite the industry reporting a first quarter increase in consumption due to higher domestic market demand.
Industry observers say this makes sense because the market is still marked by significant oversupply.
Citing the Viet Nam Cement Industrial Corporation, the Price Management Department has reported that the output and consumption of cement in March was higher than February as the "construction season" has begun.
An output of 5.19 million tonnes and consumption of 1.92 million tonnes marked a month-on-month increase of 63.7 per cent and 69.5 per cent respectively. Corresponding first quarter figures of 11.58 million tonnes and 10.23 million tonnes marked respective year-on-year increases of 9.8 per cent and 6.7 per cent, the department said.
Meanwhile, the Dau tu (Vietnam Investment Review) newspaper, cited the Construction Ministry as estimating total demand for cement this year increasing by 1.5-3 per cent over 2013 to reach 62-63 million tonnes, with the domestic market accounting for 48.5-49 million tonnes.
The cement industry has a production capacity of 72 million tonnes at present and this is expected to rise as new projects start production in 2016.
The Government has therefore declined to provide its guarantee for loans that the Tan Thang Cement Joint Stock Company wants to take from foreign credit organisations for completing a new factory that it began constructing in 2010.
The factory, which has a designed capacity of 1.9 million tonnes of cement each year, is expected to cost VND3.644 trillion ($172.7 million). Infrastructure construction is complete and preparations are on to install production lines. The company expects to market its products in 2016.
The Construction Ministry has said that most of the projects that have received Government guarantees for foreign loans are facing insolvency. These include projects implemented by the Dong Banh, Ha Long, and Song Thao cement companies
According to the Viet Nam Association of Financial Investors (VAFI), many cement companies that have taken foreign loans have had their operational efficiency reduced by subsequent increases in financial fees and interest rates, as well as the fall in value of the Vietnamese dong against foreign currencies.
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