Vietnam's Construction Material Industry: Growth Factors and Obstacles

The construction industry in Vietnam is experiencing a surge in infrastructure projects, leading to increased demand for construction materials. However, the sector faces challenges such as a sluggish real estate market and project suspensions, which could impede its growth.

According to Statista, Vietnam's hardware and building materials market is projected to generate US$13.19 billion in revenue in 2024, with an annual growth rate of 2.57 percent from 2024 to 2028. Additionally, data from Mordor Intelligence estimates that the Vietnam construction market will be valued at US$69.20 billion in 2024 and is expected to grow to US$102.20 billion by 2028, achieving a CAGR of 8.10 percent during the forecast period (2024-2028). Vietnam's market growth is driven by rising urbanization and infrastructure development.

The demand for construction stones in Vietnam

According to the Ministry of Transport, 21.5 million m3 of construction stone will be needed between 2023 and 2025 for key infrastructure projects. Specifically, Ho Chi Minh City's Ring Road 3, Bien Hoa-Vung Tau highway, and Long Thanh airport projects alone will need a collective 8 million m3, a volume equivalent to more than 3,000 Olympic-sized swimming pools. The National Expressway Master Development Plan and the Road Network Development Plan for the period 2021-2030, with a vision to 2050, if realized, could see a vast expressway system developed in the central and southern regions between 2022 and 2030, requiring huge volumes of construction stone.

Vietnam's policy on the extraction of minerals for construction materials

On July 24 this year, the Prime Minister of Vietnam issued Decision 711/QD-TTg, implementing the 'Planning for Exploration, Exploitation, Processing, and Use of Minerals for Construction Materials for the Period 2021-2030, with a Vision to 2050'. According to this decision, the mineral extraction strategy must adhere to national and land-use plans. Approximately 73,629 hectares of land are estimated to be utilized for mineral exploration and exploitation for construction materials nationwide until 2050, implemented in two phases: 52,505 hectares for the period 2021-2030 and 21,124 hectares for the period 2031-2050. The Ministry of Natural Resources and Environment will lead the land use plan implementation in cooperation with other authorities.

Per Decision 711, the land use plan must be implemented under the following principles:

Mineral exploitation projects must be executed promptly to return the land fund for other socioeconomic development projects and to minimize the impact of mining areas on local land use plans.

In particular mineral areas, the progress of mineral exploration and exploitation projects and their land use plans will be adjusted at the request of provincial people's committees for specific purposes.

These purposes include the implementation of pressing and vital projects, such as:

• Public investment and infrastructure initiatives for national and public interests;

• Projects that harness social resources; and

• Renovating and enhancing infrastructure projects supporting local socioeconomic progress.

The adjustment must be carried out while safeguarding and expanding public assets, ensuring the recovery and preservation of mineral resources, and adhering to legal requirements.

Specific mineral areas eligible for these adjustments must have substantial reserves and a broad distribution, and be suitable for open-pit mining, such as white sand, cement minerals, and paving stones.

Regulations

The Mineral Law

Organizations and individuals engaged in mineral mining activities in Vietnam must use environmentally friendly technology, equipment, and materials, and bear all costs associated with environmental damage. They are required to deposit environmental rehabilitation and restoration before starting mining operations. Foreign investors must obtain a mineral mining license to conduct mining activities in Vietnam.

To be eligible, the following requirements must be met:

• They must have an investment project in the approved exploration area.

• The project must have a plan for human resources, equipment, and appropriate mining methods.

• For hazardous minerals, written permission from the prime minister is also required.

• They must have an environmental impact assessment report or a commitment to environmental protection.

• They must have equity capital equal to at least 30 percent of the total investment capital of the project.

Foreign investors and organizations exploiting minerals have the following obligations.

• To pay fees for mineral mining rights, license issuance, taxes, and other financial obligations.

• To safeguard natural resources and implement occupational safety and environmental protection measures.

• To restore the environment and land to its natural state upon mine closure.

Barriers to market entry

Foreign firms face several restrictions when entering the Vietnamese market. For instance, under the CPTPP, foreign investment in the mining sector will only be approved if the Vietnamese authorities determine that the project provides a net benefit to Vietnam. This assessment considers factors such as the project's impact on economic activity, productivity, efficiency, technology development, innovation, and competition within the same industry or sectors in Vietnam.

Law on Environmental Protection Tax

The Law on Environmental Protection Tax 2010 imposes a tax on heavily polluting sectors and industries. Currently, the environmental protection tax is collected only on coal for mineral resources, but Vietnam's environmental regulations are expanding, and the construction industry could be affected in the future if the tax is extended to include construction stone.

Vietnam's key construction stone quarries

Tan Cang

According to a 2023 report by SSI Securities, the Tan Cang quarry is expected to be the primary source of construction stone for the Long Thanh Airport project, Ring Road 3, and several other major projects in Vietnam. The quarry, licensed by Dong Nai province, covers an area of 400 hectares and has estimated reserves of over 160 million m3. Currently, 10 businesses are authorized to operate in the area. SSI forecasts a 28% year-on-year increase in demand at the Tan Cang quarries due to these major projects, accompanied by an 8% year-on-year rise in the price of construction stone.

Thanh Phu

The Thanh Phu area is a crucial source of construction stone for Vietnam's southwest region, with nine active quarries. Demand at the Thanh Phu quarries is projected to rise by 15 to 16 percent annually due to major infrastructure projects like the Can Tho – Hau Giang and Hau Giang – Ca Mau expressways. Additionally, construction stone prices are expected to increase by 7 percent year-on-year.

Challenges facing the construction materials industry

The construction materials sector, real estate, and construction industries form a closely linked value chain that is highly sensitive to economic cycles, significantly impacting Vietnam's GDP. Despite efforts, Vietnam's real estate market faced substantial challenges in 2023.

The Vietnam Report, released in February 2024, highlights a shift in business perceptions regarding the most significant obstacles in the construction materials sector, as reflected in the Top 10 Construction Material Businesses for 2024. Researchers observed changes in respondents' opinions, with concerns over buyers' financial health surpassing price fluctuations as the primary challenge in the construction materials industry for 2024.

Buyers' financial constraints

According to the Vietnam Report survey, buyers' financial constraints due to slow economic growth increased by 14.6 percent in 2024 compared to 2023. With a modest economic recovery, reflected by a growth rate of just 5.05 percent in 2023, there was a lack of improvement in demand, leading to slow payments for real estate and construction materials. In the survey findings, buyers' poor financial health overtook material price fluctuation as the top obstacle in the construction materials sector, rising to 84.6 percent from 70 percent last year.

Price rise despite sluggish market

Concerns about fluctuations in raw material and construction material prices have decreased, but construction material prices continue to rise. The increased prices are driven by higher transport costs and fewer production facilities, not by demand. The high cost of construction materials directly impacts the cost of construction projects, leading to a surge in real estate prices. The constant fluctuation of material prices also disrupts construction progress due to capital increases, forcing investors and contractors to recalculate their costs.

The survey's respondents identified competition as their third-highest concern, with the perception of this challenge remaining relatively stable compared to other difficulties, increasing by only 3.8 percent to 53.8 percent from the previous year.

Disruption of local and global supply networks

With a 26.2 percent increase to 46.2 percent this year, the number of respondents worried about interruptions in domestic and international supply chains more than doubled. Geopolitical tensions, delays and disruptions in freight shipments, declines in carried commodities, and the possibility of shipping charges doubling were the main culprits. Vietnam's exports of building materials would face further challenges from export tariffs on certain items and stringent environmental protection regulations in developed markets.

Demand and supply

Construction material costs are highly impacted by the mismatch between supply and demand, with the biggest growth rate of 36.2 percent occurring from 10 percent in 2023 to 46.2 percent in 2024. Cement and clinker were in excess, but the steel industry had trouble meeting the increased demand from other sectors.

Industry Outlook

Since the latter part of 2023, public investment has been the main force behind the construction materials market. The Vietnamese government has authorized plans for a plethora of industrial and urban infrastructure improvements in addition to initiating many significant transportation infrastructure projects.

Nevertheless, the surplus supply of building materials cannot be made up for by the demand for them brought about by public investment alone. Therefore, in order to increase product consumption and get through this difficult time, businesses must concentrate on growing their home market while looking for new export markets.

Growth-promoting factors

Urban housing is necessary.

Vietnam's urban population, which presently makes up over 40% of the country, is expected to increase to 45% by 2030, according to the Ministry of Construction, requiring an extra 70 million square meters of housing every year. Over the next several years, this expansion will fuel strong demand for housing units in major cities and industrial zones, benefiting the residential building market as well as the construction industry as a whole. The pandemic's effects on industrial real estate have drawn in new investors, including international and local developers like Fraser, and ESR, as well as Vinhomes and Thanh Cong Group. Investment funds have also jumped in, with companies such as Actis funding operators of nearby industrial parks.

Meanwhile, the government has moved to put sustainable building into practice, realizing how important it is to the country's long-term growth. The Ministry of Construction (MoC) has encouraged sustainable practices among developers by releasing rules for green building certification, which has increased the number of green structures in the nation. The Ministry of Construction (MoC) projects that by 2030, Vietnam's housing demand will have increased by 70 million square meters annually or 17,500 thirty-story structures. There are currently 381 green building projects in development, and by 2030, there should be 582.

Development of infrastructure

Vietnam's government adopted a road development plan for 2021–2030 in September 2021, to increase the country's expressway network from 3,841 kilometers in 2021 to approximately 5,000 kilometers by 2030. The plan calls for building 3,034 kilometers of coastline roads to connect 28 towns and provinces, as well as 172 national highway routes totaling 29,795 kilometers—an increase from 5,474 kilometers in 2021.

In the meantime, it's anticipated that policy modifications will lead to increased demand for a few construction materials. For example, at the design stage of expressway projects, the Ministry of Transport has instructed investors to use more reinforced concrete overpasses, particularly in places that require flood drainage, have poor soil, or lack roadbed materials.