Building slump bad news for construction materials companies
17-07-2012
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Construction materials companies have been holding onto very large inventories
Thach Ban JSC, one of the companies that has historically been profitable, is considering cutting back on production.
Deputy Director of Thach Ban JSC, Nguyen Trong Kien, said they currently have two months of inventory, demand has decreased by 30% compared to last year, while the input materials prices have increased. The company increased their prices by 4% in April but they had to lower them by 8% in June due to the slump.
"We have no choice but to accept the losses. We expect some of the factories will lose as much as VND10 billion (USD478,000)," Kien said. To ensure the company's continued operation, they have been making cutbacks and focusing on advertising. "Even the CEOs, directors are taking part in marketing activities to better understand customers."
Viglacera Ha Long has also seen its share of difficulties. In 2011, the company made VND70 billion (USD3.4 million), but in early 2012 they lost VND84 billion (USD4 million).
Nguyen Van Sinh, Deputy Director of Viglacera, said they are only at 65% of production capacity but inventory is still high, with six months of inventory for glass and two months of tile.
The steel industry also felt the impact. The Pomina Company has 40,000 tonnes of inventory.
Do Duy Thai, a representative of Pomina, said the consumption decreased by 20% compared to the same period in 2011. And even with lower interest rates, only some big corporations are able to get loans and others only loans with high interest.
According to Vietnam Steel Association, a 20% reduction in inventory is needed to get back to normal levels.
The cement industry also has three million tonnes of inventory.
Dinh Quang Huy, Chairman of Vietnam Building Ceramic Association, said that enterprises have only been able to sell 70-75% of their products.
"The real estate market is in a slump and capital is hard to come by. The construction materials sector is also suffering," he said.
Le Van Toi, head of Department of Construction Materials under the Ministry of Construction, said the main reason for the problem is companies' inability to balance their books.
Most of their capital comes from loans, so when inflation rises and exchange rates go down these companies take a big hit, he said.
Nguyen Tuan Duong, Vice Chairman of Hoa Phat Corporation, said in order to deal with the current situation the company will operate at 70% of its capacity in hopes of lowering inventory in the next 3-6 months.
"This year prices will likely either stay where they are or rise slightly, but demand is not expected to increase,"
Aside from reducing their production, Viet Duc Steel Company will ask customers for immediate payment, or extend credit for only short periods. They are also seeking to expand exports.
