Public Projects Set to Boost Demand for Construction Stones in Vietnam

A swathe of infrastructure projects are driving demand for construction stones in Vietnam. Here’s what construction firms looking to capitalize on this development should know.

One of the major forces behind Vietnam’s economic growth is public investment. Public investment in the near future is expected to have a positive impact on a variety of industries, including the building stone sector. However, challenges in terms of the gloomy real estate market and the suspension of a number of projects may hinder this sector’s expansion.

In this article, we will look at what is driving demand in this industry, how foreign enterprises can benefit from this demand, and also the challenges they may face operating in this sector.

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, it is anticipated that 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.

It may come in even higher than that too. The National Expressway Master Development Plan, approved in 2016, if realized could see a vast expressway system developed in the central and southern regions between 2022 and 2030. This will take huge volumes of construction stone, too.

Barriers to growth

There are however a number of challenges facing Vietnam’s construction stone industry.

Increases in fuel prices

According to the Vietnam Report, the escalation in the price of construction materials is not so much demand based as it is due to the impact of international input material prices, such as gasoline, oil, coal, and freight rates.

This increase in fuel prices can raise transportation costs of stone, which can lead to higher prices that may in turn impact demand.

Increase in environmental protection costs for mining

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On May 31, 2023, the government issued Decree 27/2023/ND-CP stipulating environmental protection fees for mineral exploitation. Specifically, the environmental protection fee for mining stone as a building material is 7,500 VND/m3 (an increase of 2,500 VND/m3).

According to the Ministry of Finance, this increase in fee payment aims to ensure the economical and efficient exploitation of minerals, to avoid wasting resources, and to encourage enterprises to invest and apply advanced technology.

The fact that mining businesses must spend money on expensive technology, tools, and procedures to reduce their environmental impacts may raise the production costs of mining and processing building stones.

Quiet real estate market

According to KIS Vietnam, the construction stone sector will face several challenges in 2023 as a result of the quiet residential real estate market that may remain that way for the better part of this year. The number of commercial housing projects nationwide dropped significantly in 2022 compared to the previous year. Only 22 commercial housing projects were approved for development in the southern economic region, a decrease of 25 percent from 2021.

Regulations

The Law on Minerals

Under the Law on Minerals foreign investors that want to conduct mining activities in Vietnam must be granted a mineral mining license.

To do so, they must satisfy the following conditions:

• They must have an investment project in the area where reserves have been explored and approved.
• The project must have a plan for human resources, equipment, and appropriate mining methods.
• For hazardous minerals, written permission must also be obtained from the prime minister.
• They must have an environmental impact assessment report or a commitment to protecting the environment.
• They must have equity capital equal to at least 30 percent of the total investment capital of the project.

Organizations and individuals exploiting minerals, including foreign investors, also have the following obligations:

• To pay fees for mineral mining rights, fees for the issuance of mineral mining licenses, taxes, and other financial obligations.
• To protect natural resources, and to implement occupational safety and environmental protection measures.
• To, on the closure of the mine, restore the environment and land to its natural state.

Market access restrictions

There are several conditions that limit foreign firms from entering the market. For example, according to the CPTPP, foreign investment in the mining sector will only be approved if the Vietnamese authorities find the project brings a net benefit to Vietnam. This includes considerations like:

• The impact of the investment project on economic activity in Vietnam, including the impact on jobs and the use of equipment, components, and services made in Vietnam and exported from Vietnam;
• The impact of the project on productivity, economic efficiency, technology development, and product innovation; and
• The impact of the project on competition in the same industry or sectors in Vietnam (see also: Vietnam’s Competition Law: Notes for M&A Transactions).

Environmental regulations

Law on Minerals

According to Article 30 of the Law on Minerals, organizations and individuals engaged in mineral mining activities must use environmentally friendly technology, equipment, and materials. They must also bear all costs associated with damage to the environment. In this light, before they start mining, they are required to make a deposit for environmental rehabilitation and restoration.

Law on Environmental Protection Tax

The Law on Environmental Protection Tax 2010 provides for a tax on heavily polluting sectors and industries. For mineral resources, the environmental protection tax is collected only on coal. However, Vietnam’s environmental protections are expanding and construction could be impacted at a later date if it were to expand to include construction stone.

Key construction stone quarries in Vietnam

Tan Cang

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According to a 2023 report on construction stone in Vietnam produced by SSI Securities, the Tan Cang quarry is likely to be the main source of construction stone for the Long Thanh Airport project, Ring Road 3, and several other projects. This quarry is licensed by Dong Nai province with mining firms permitted to exploit a total area of 400 hectares. Construction stone reserves are estimated at more than 160 million m3. There are currently 10 businesses licensed to operate in the area.

SSI estimates that the demand at Tan Cang’s quarries will increase 28 percent year-on-year as a result of these major projects. The price of construction stone is expected to increase by 8 percent year-on-year at the same time.

Thanh Phu quarries

This quarry is a key source of construction stone for Vietnam’s southwest region. There are currently nine quarries in the Thanh Phu area. SSI also estimates that demand at the Thanh Phu quarries will increase by 15 to 16 percent year-on-year due to major projects such as the Can Tho – Hau Giang and Hau Giang – Ca Mau expressways. Construction stone prices are expected to increase by 7 percent year-on-year, as well.

Conclusion

Despite facing some barriers to growth regarding the quiet real estate market and rising fuel costs, the construction stone industry shows great potential with respect to the broad number of public projects slated to be built between now and 2030.

However, foreign firms should be aware that there are several conditions and environmental protection measures that need to be met in order to be permitted to enter this market.

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