Cement: the Southeast Asia view

This is an abridged version of the full article, which appeared in the February 2013 issue of World Cement. Subscribers can view the full article by logging in.

Southeast Asia (SEA) is one of the most dynamic and fast-growing regional economies in the world and, despite headwinds in China and North Asia, it shows no sign of slowing. The area’s low per capita income, rising populations, larger savings and strengthening cross-border trade links all drive infrastructure development and, with large-scale investment in construction activities, the demand for cement is likely to remain strong in the years ahead. In 2011, the per capita cement consumption in the SEA region was 285 kg, in comparison with 2007’s 147 kg.

Vietnam, Indonesia, Thailand and Malaysia dominate the regional cement industry. Predictably, these four countries also account for about 80% of the total cement demand in SEA. The Asian Development Bank estimates that the SEA region spends roughly US$60 billion a year on infrastructure upgrades.

Vietnam mixes it up

Despite being one of the least developed countries in the region, Vietnam has the biggest cement market in SEA and ranks seventh in the world in terms of production. In recent years, a real estate boom has fuelled construction demand and cement plants have mushroomed as a result. Unfortunately, the industry planned poorly, and supply has outstripped demand. The Vietnam Cement Association (VNCA) estimates 2012 cement production capacity at 75 million t as several new projects come online, even as domestic cement consumption stagnates at 50 million t due to cuts in public investment, high interest rates and delays to housing projects. This anomaly adversely affects the industry.

According to the association, cement inventories are expected to rise by 23%, reaching 6 million t in 2012. The industry has been looking at short-term exports to reduce its stock, but thanks to the lack of maritime infrastructure and tough competition from major exporters such as China and Thailand, Vietnam could only tap remote markets such as Africa.

Another challenge faced by the industry is lower fuel subsidies, which led to higher production costs. VNCA reported that gasoline prices have increased by 30% in 2012, while electricity and coal costs have risen by 15% and 41%, respectively. This, too, has eroded many cement producers’ operating margins.

Despite Vietnam’s fast expanding economy, domestic cement consumption is expected to grow at a lower rate, and industry analysts expect a continued surplus if the government does not act to stimulate demand and review current capacity projects. Meanwhile, cement exports are expected to pick up as port infrastructure improves.

Pouring it on in Indonesia

Indonesia has the second-largest cement industry in SEA, but it lags behind its peers in terms of per capita consumption. The industry has been through a period of high growth over the last five years, when domestic consumption grew at a CAGR of 8.5%, and peaked at 48 million t in 2011. The country’s per capita GDP increased from only US$1060 in 2003 to nearly US$3500 in 2011. It is logical to expect people to upgrade their housing as they have more money in their pockets. Furthermore, with the government already spending 19% more on infrastructure in 2012, GDP can be expected to continue growing in response to this stimulus. This bodes well for cement demand, especially as new land legislation will pave the way for major infrastructure developments that have been shelved for years. Domestic cement sales reached 44.6 million t for January – October 2012, a 14.5% y/y growth. The Indonesian Cement Association (ICA) expects production capacity to reach 80 million tpa by 2015 in line with demand growth.

Major investors are attracted by the potential of the local cement industry. The industry is dominated by three players that represent over 85% of total cement sales: Semen Gresik (40%), Indocement (32%) and Holcim Indonesia (15.7%).

The ICA forecasts a 6% increase in cement output and expects cement demand to increase by 8 – 10% in 2013. This can be attributed to strong economic prospects, as well as low current per capita consumption. To keep ahead of growing demand, Semen Gresik is on target to expand production from 19.8 million t in 2011 to over 30 million t by 2015. Even so, scarcity of volumes will result in persistently high cement selling prices, and, coupled with lower production costs from lower commodity prices, margins should increase.

Thailand expands its reach

Thailand’s cement industry was buoyed by the country’s pro-economic growth policies and government sponsored infrastructure investments in 2012. Cement consumption grew by a healthy 16% y/y in 3Q12, thanks to post-flood reconstruction projects that rebuild business activities. A forecast 5% increase in GDP will help lift cement demand in 2013 as the economy picks up again. With massive infrastructure projects in the pipeline, construction output is expected to grow on average by 4.7% through 2020, according to the country’s Transport Ministry. 

Cement production capacity is about 56 million tpa, with most Thai cement plants running at about 60% capacity. With its excess capacity, Thailand remains one of the cheapest and largest cement exporters in the world, coming in behind only China and Turkey.

Malaysia’s balancing act

Malaysia’s cement industry saw little growth during 2006 – 2010 as the capacity, consumption and production of cement remained stagnant. The average cement demand growth over this period was only 0.5%. That figure has now changed thanks to the 10^th Malaysia Plan (2011-2015), in which US$75.6 billion has been allocated to the development of key infrastructure projects. Domestic cement consumption grew by 6% to 17 million t in 2011, thanks in part to such infrastructure projects.

High cement demand is driving many companies to commission new projects that take into account future capacity expansion. By 2013, the country’s total installed capacity is expected to increase by 25%. More growth in the Malaysian cement industry is expected in the coming years, fuelled by rising housing and infrastructure development, as well as a better supply and demand balance. RHBRI forecasts a 6% increase in cement consumption and expects capacity to expand by 25% in 2013 with additions from YTL Cement and CIMA. Moreover, favourable interest rates and increasing per capita income will be the drivers.

Sources.

1. Asian Development Bank, http://www.adb.org/
2. CEIC Data, http://www.securities.com/ 
3. Davis Langdon, World Construction 2012 report, March 2012.
4. IMF, World Economic Outlook, October 2012.
5. Indonesia Cement Association (ICA), http://www.asi.or.id/home
6. RHB Research Institute Sdn Bhd (RHBRI), www.rhbinvest.com
7. Thai Cement Manufacturers Association (TCMA), http://www.thaicma.or.th/
8. The Cement and Concrete Association of Malaysia (C&CA), http://www.cnca.org.my/ 
9. The World Bank, http://data.worldbank.org/country 
10. Vietnam National Cement Association (VNCA), http://www.vnca.org.vn/en 
11. Vietnam Construction Materials Association (VCMA), Ministry of Construction, http://www.moc.gov.vn/english
12. Company reports and press releases (companies mentioned in text)
13. International Cement Review (Cemnet), http://www.cemnet.com/news
14. The Jakarta Globe, http://www.thejakartaglobe.com/business/ 
15. The Nation Thailand, http://www.nationmultimedia.com/business/ 
16. The Star Online Malaysia, http://biz.thestar.com.my
17. Vietnam Business Forum, Vietnam Chamber of Commerce and Industry, http://vvcinews.com/
18. Viet Nam News, http://vietnamnews.vn/economy

Written by Laksme Khorana, Emerging Markets Direct. This is an abridged version of the full article, which appeared in the February 2013 issue of World Cement. Subscribers can view the full article by logging in.

Read the article online at: https://www.worldcement.com/asia-pacific-rim/01022013/cement_markets_thailand_indonesia_vietnam_malaysia_02132/