Producers in Loss?

Input cement material prices expected to rise sharply may affect the cement cost price in 2006. However, the increase in cement prices can not be done arbitrarily as the government decree on cement price stability is still in valid. So the burden now is on the producers' shoulders.
 
During the past few days, the cement price in some areas of Ho Chi Minh City has risen. It is rumored that the cement price in Ho Chi Minh City rises due to "its shortage". In reality, cement reserves of the entire industry, including Viet Nam General Corporation of Cement, cement production joint-venture companies, and cement blast-furnaces (1.4 million tons in the early January of 2006) are quite capable of meeting the market demand. 
 
However, according to an evaluation from the Viet Nam Cement Association, the profit of this industry is decreasing annually and continues to drop in 2006 (average profit of the cement industry decreasing from 5% to 7% per year) due to the effects of price increases on such input materials as coal, electricity, gas, oil, transportation, imported clinker, etc. With such an average price rise of input materials, if the current cement selling price remains unchanged, it will result in big losses. 
 
The situation becomes "hot" in 2006. It is forecasted that the clinker import price will be nearly US$30/ton and the cement selling price in the country will be over VND850,000/ton (about US$53/ton). Up to now, however, there has been no “move” to raise cement prices from the government and producers. 

Cement production line of Phuong Nam Cement Company at Hiep Phuoc IP in HCMC. (Photo: D.Th.)
 
But as the producers cut down the commissions and promotion, transport expenses, bonus for distributors and agencies, which cause them to lose part of their real profit, the agencies then increased the selling price by VND12,000 - 15,000/ton (US$0.7-0.9/ton) and reduce transport expense support for buyers. 
 
The Viet Nam General Corporation of Cement and many producers think that it is hard to maintain such a low price as now. It is more difficult for recently built cement plants which suffer losses in the first 2 to 4 years of their operation. Information released from the Cement Association said the number of cement plants suffering losses are not small, for instance the Tam Diep cement plant (in Ninh Binh), the Hai Phong cement plant, to name a few, are in moderate operation with 50% of their capacity during the last 5 years. 
 
Chairman of the Viet Nam Cement Association, Nguyen Van Thien, said the problem will be thorny when several cement plants’ investment loan payment falls due in 2006.
 
To deal with this problem, many people propose that there should be a proper roadmap in setting selling prices for cement so that production enterprises, trading units and consumers as well can anticipate market changes, be active in their business plan, minimize "unexpected" factors which may change the market, conform to integration tendency and ensure benefits for the country, producers and consumers. 
 
Especially, the forecast for cement markets needs to be more precise. The lesson learned in 2005 shows that the cement industry was damaged as the forecast of a huge amount of cement consumption at the beginning of the year had made foreign clinker suppliers force prices on Viet Nam cement companies. 
 
On the other hand, the price roadmap for cement has an effect as an orientation of investment on the cement industry in the coming years and is an exit for this industry.

By Ba Tan - Translated by Yen Chuong

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