Thanks to the VND700 trillion (US$29.7 billion) public investment disbursement plan in 2023, demand for construction rock for big public investment projects is expected to boost profits for the industry’s enterprises.
Experts expect investment demand to increase thanks to this year’s public investment projects, boosting the growth of construction and building materials businesses, including construction rock, in the future.
According to the public investment disbursement plan in 2023, more than VND700 trillion will be invested in many key projects, including the North-South expressway, various ring road projects in Ha Noi and HCM City, and Long Thanh airport.
The Ministry of Transport said that the demand for construction rock in 2023-2025 will be approximately 21.5 million cu.m. Specifically, the Long Thanh airport, Bien Hoa – Vung Tau highway, and Ring Road No. 3 are expected to use 2.04 million cu.m, 738,000 cu.m, and 5.2 million cu.m of construction rock, respectively.
Agribank Securities Corporation (Agriseco) said that the construction materials businesses will benefit directly after projects finish the site clearance phase and enter project implementation.
For construction stone enterprises, transportation costs have a great impact on the firms' ability to sell their products. Those with a large market share and located near ongoing projects will benefit more than the rest of the industry.
Since most construction rock quarries are located across the country, transportation costs are a major factor affecting the cost. Most construction contractors will choose quarries near their projects.
However, the supply of construction rock is still limited as the new construction rock quarry planning for the 2021-25 period has not been completed, especially for provinces and cities that are centres of construction rock exploitation in the south, including Binh Duong and Dong Nai provinces. In addition, compensation for land in the quarry areas has inched higher, causing an imbalance in the market as supply does not meet demand.
According to the analysis of SSI Securities Corporation (SSI), Tan Cang construction rock quarry is the main source of supply for Long Thanh airport, Ring Road No.3, and other projects. With nine quarries in the Tan Cang area, SSI estimates that demand at Tan Cang's quarries will increase by 28 per cent over the same period last year.
Construction rock prices are expected to advance by 8 per cent year-on-year, offsetting the rise in fuel costs and environmental protection costs for mining.
Due to high mining and loading soil layer costs, the gross profit margin at Tan Cang mines is maintained in the range of 28-30 per cent, lower than the average at other quarries such as Tan Dong Hiep and Thanh Phu of 45 per cent and 32 per cent, respectively.
For Thanh Phu construction quarries, the main source of supply for projects in the southwest region with nine quarries, SSI also estimates that demand at the quarries will rise by 15-16 per cent year-on-year thanks to projects such as the Can Tho-Hau Giang and Hau Giang-Ca Mau expressways.
Construction rock prices are expected to increase by 7 per cent over the same period.
Analysts believe that these factors will boost the profits of listed construction rock companies in 2023. Particularly, SSI forecasts that the profits of listed companies will jump by 16 per cent over last year. Rock output is expected to rise by 15 per cent on average in 2023, while selling prices are expected to rise by 7-8 per cent, the securities firm said.
However, SSI also pointed out the risks that enterprises in the industry are likely to face in the future, including the prolonged licensing of new mines, and expected-rising receivables for construction rock companies when construction projects are not on schedule.
Moreover, environmental protection costs are expected to increase in 2023. According to the decree on environmental protection costs for mineral exploitation, the cost may be higher this year, resulting in a surge of 50 per cent in the cost of construction rock firms. SSI estimates a 0.8 per cent drop in gross margin due to the higher fee. — VNS