Government spending and budget on major infrastructure projects have increased across Southeast Asia, including in the Philippines, Vietnam, and Thailand. However, the soaring prices of the construction material, lockdowns in China and the ongoing Russia-Ukraine war have been a matter of concern for the regional industry’s stakeholders.
In its latest report, Southeast Asia Construction Industry Report 2022: Analysis & Outlook 2018-2022 & 2023-2032, ResearchandMarkets.com said that the construction industry in the Southeast Asian countries, including Thailand, the Philippines and Vietnam, will continue to grow from 2023 to 2032.
“Relatively cheap labour and land costs have attracted many foreign investors to shift production capacity to Southeast Asia. Foreign trade has expanded, and the development of industrial real estate, commercial real estate and infrastructure sectors has boosted the construction industry. On the other hand, with the economic growth in Southeast Asia, the real estate industry is also growing rapidly, promoting the development of the construction industry,” the report noted.
Vietnam
The General Statistics Office of Vietnam said that despite headwinds, the construction industry grew by 13.8% year-on-year in Q3 2022, following an expansion of 5.3% in Q2 and 3.3% in Q1 of 2022. This means the demand for aggregates has been on the rise in the country.
GlobalData, a leading data analytics and consulting company, projected that the Vietnam construction industry was expected to grow by 8.5% in real terms in 2022, supported by investment in renewable energy and transport infrastructure projects.
It also said the industry would register an annual average growth rate of 8% between 2023 and 2026, supported by the government’s focus on the development of the country’s rail and road transport and energy infrastructure, coupled with investments to develop affordable housing.
The construction of Ho Chi Minh City’s 454km of transport infrastructure by 2025, at a cost of US$11.4bn, and a 98km ring road connecting the capital city of Hanoi and two neighbouring provinces at a cost of $3.6bn, are expected to underpin the transport sector’s outlook.
“In addition to this, the Power Development Plan Eight (PDP VIII) for the period of 2021-30, with a vision towards 2045, and the government’s plan of constructing 1.8 million houses by 2030, are expected to add further support to the industry,” GlobalData said.
Wilson Shee (WS), head of market Myanmar, Cambodia & Vietnam, Volvo Construction Equipment (Volvo CE), said that Vietnam’s construction industry growth was supported by investments in renewable energy and transport infrastructure projects despite the global impact of the slow economy and COVID-19.
“Vietnam’s government executed plans to develop infrastructure, in particular airport, seaport, and major highway projects. Economic growth is expected to be held back in 2023 due to the weakening effect of global demand, increasing fuel prices and rising inflation.”
However, in H1 of 2022, the prices of building materials such as steel, cement, asphalt, sand, and stones skyrocketed, slowing down the disbursement of public investment and worrying many investors and contractors involved in large-scale Vietnamese infrastructure projects.
In its report to the steering committee on price management, Vietnam’s Ministry of Construction said that prices would continue to increase sharply during the second half of 2022.
Tran Anh Tu, general director of Vietnam Infrastructure Development and Finance Investment (Vidifi), said that the price volatility was discouraging investors and contractors from getting involved in infrastructure projects.
Ho Dinh Chung, general director of Deo Ca Group, which has invested in the 78.5km Cam Lam-Vinh Hao expressway project, also expressed concern over the abnormal prices of construction materials. He said that while most investors clearly saw the risks before executing them, they failed to take building material price fluctuations into account. The Deo Ca Group urged Vietnam’s Ministry of Transport to remove these obstacles.
Thailand
Thailand is the second-largest economy in Southeast Asia and was badly hit by COVID-19. The economic aftershocks of the Russia-Ukraine war were felt across all major sectors, Russia and Ukraine being the world’s major sources of iron and iron ore, accounting for 14% of global exports. Iron ore is one of the most important components of building materials.
Stefan Hunger, associate director of business development (SE Asia) CDE Asia, said that Thailand’s aggregates industry suffered in 2022 due to global price hikes in fuel and building materials. Despite this, Thailand’s GDP has grown by 3.7% in 2022, exceeding the 2.9% World Bank projection.
However, 2023 is likely to be a much better year, with 4.5%-5.5% predicted growth in investment in the Thai construction industry. The 2023 GDP growth for Thailand is projected to be 3.6 %, Hunger said.
According to him, a significant pre-requisite to achieving the projected growth in construction will depend on increased investment in government megaprojects and the projects connected to the Eastern Economic Corridor (EEC).
To fulfil this requirement, works will need to be accelerated to deliver the Phase II EEC transport infrastructure development plan for 2022-2026. The EEC project is initially focused on the three Eastern provinces - Rayong, Chonburi, and Chachoengsao.
“This project has already suffered significant delays in 2022 due to quarries functioning at only 50%-70% capacity because of low aggregate demand in the struggling construction economy,” Hunger explained.
“Q4 2022 ended on a note of hope as the EEC project restarted with the anticipation that aggregate production and demand will increase with normalcy returning to global trade relations and lower aggregate prices,” he said.
Construction spending dips
Pimnara Hirankasi, head of industry research department at Krungri Research, which is part of Bank of Ayudhya in Thailand, said that overall spending on construction in Thailand dipped -1.5% year-on-year to US$32.52bn in the first nine months of 2022 due to weak demand and higher costs of transport and construction materials.
Although private construction spending edged up 0.6% year-on-year because of increases in residential and commercial developments, public construction spending dropped 2.9% due to delays in disbursement. For the rest of 2022, combined spending on construction is expected to slide slightly compared with a year ago.
Total construction spending for the year is forecast to shrink by 1.2% to $41.14bn, split between a fall of 2.7% in public construction and an increase of 0%-1% in private construction, she said.
However, all hope is not lost as public construction spending is predicted to increase by an average of 5%-5.5% per year, driven mostly by an acceleration of work on EEC-related projects.
“Private construction spending should expand by 4%-4.5% annually due to an acceleration in work on public-sector infrastructure projects that will then attract greater private-sector investment, especially along or near new communication routes/links; heavier spending in the EEC that will support an uptick in work on factories and industrial estates in the area; and a generally improving outlook for the residential housing market,” she said.
Challenges and opportunities
According to Hunger, population growth in Thailand’s major cities compared to rural areas has increased from 31.39% in 2000 to 49.95% in 2018, and the World Bank Data recorded a 0.2% increase in 2022. With consistent urban population growth projected, it is important to acknowledge Thailand’s demand for urban developmental infrastructure and construction.
Thailand’s construction industry maintained a steady growth rate even during the pandemic, and the supply chain of construction aggregates, which is dependent on virgin resources such as natural sand, has been rapidly overwhelmed.
As a result of overconsumption, various environmental problems are emerging, leading to every project having a high environmental impact along with the lurking possibility of complete depletion of natural resources and fossil fuels.
“Under such circumstances, the opportunity for green aggregates intensifies. Manufactured Sand (M-Sand), which is a superior and sustainable alternative to river sand produced through advanced recycling of assorted urban waste, therefore can emerge as a saviour,” he said.
As of now, M-sand is a new material category which is perceived negatively owing to its history of failure resulting from improper use of equipment and processes. There is inadequate demand for M-sand at present, and the appeal of CDE Asia’s potentially game-changing equipment technology remains at the nascent stage.
However, the ready-mixed concrete market and construction sectors continue to use natural sand for construction and are unfamiliar with washed sand and green aggregates. The problem is further compounded by the Royal Highway Department’s regulation allowing only natural sand to be used in road-building contracts.
“The challenges are extreme, and only the goodwill generated by us and our technical marketing skills will be able to sway the officials and major companies. However, the final challenge remains as to how we safeguard our leadership position after paving the way for a full-fledged green aggregates industry,” he added.
Raven Chua (RC), head of market Thailand, Laos & East Timor, Volvo CE, said that in the post-COVID-19 re-openings, roads and highway projects contributed strongly to the Thai construction sector.
“For this year, the current government-budgeted construction spending is set to increase by 5%, but we feel the overall market could experience some slowdown due to elections and some major contractors already advancing equipment purchases in 2022,” he said.
The Philippines
The retail and wholesale prices of building materials in the National Capital Region (NCR) continued to rise at a slower pace in December compared with the previous month, The Philippine Statistics Authority (PSA) said.
PSA data showed the annual increase of the Construction Materials Retail Price Index (CMRPI) in NCR eased further to 5.6% in December last year from 6.2% in November. Compared to the 2.7% growth in December 2021, construction materials’ retail prices picked up at a much faster pace in the same month last year.
The drop in construction materials’ prices is partly due to the recent downward correction in the US dollar or peso exchange rate and in global oil and other major commodity prices from higher levels earlier in 2022, especially shortly after the start of the Russia-Ukraine conflict, leading to an easing of import prices or costs.
Peh Jing Peng, head of market Philippines, Taiwan & Brunei, Volvo CE, said that the Philippines construction industry witnessed a growth rate of 7% in 2022. It is poised to increase by a further 7% to 7.5% in 2023, mainly thanks to government spending on infrastructure, with the continuation of the Build Build Build programme.
The government has allocated a total of 1.2trn pesos for infrastructure development in 2023, Peng said.
Eco-friendly
According to Hunger, the devastating effects of pollution have meant that environmental protection has become an increasingly important issue in Thailand. Eco-consciousness in domestic quarries gained significance after the formalisation of the Environmental Impact Assessment (EIA) system by the Office of Natural Resources and Environmental Policy and Planning. However, even with stricter environmental parameters, most corporates lacked skilled personnel to implement and monitor their company’s environmental impact and ESG performance.
“We take environmental liability of quarries seriously. We work towards decreasing the overconsumption of Thailand’s river sand by the construction and aggregates industry, which is creating environmental disruption in the country and causing the corrosion of banks and riverbeds, triggering landslides, and depleting underground water tables,” he explained.
He continued: “We aim to leverage our expertise in zero-waste mining technology to usher in a circular economy. This can be possible by employing our revolutionary waste management systems that process assorted waste material into high-value construction sand and green aggregates, which can be fed back into Thailand’s growing construction industry. We believe that our focus on sustainable and responsible mining strategies will prolong the life of Thailand’s precious natural resources.”
Chua also said that climate change, environmental standards, and eco-friendliness have gained more awareness in Thailand.
“Though Volvo CE is yet to launch its electric machines in Thailand, we have started building awareness of the new technology. We are highlighting its benefits, which include a smaller carbon footprint and reduced noise, whenever possible through our dealers’ social media. We want to build market awareness of the eco-friendly offerings we have in the pipeline,” Chua said.
In Vietnam, environmental standards and eco-friendliness are gaining awareness in the local market. The launch of Volvo CE electric machines in the future will be one big step in building awareness of the company’s eco-friendly offerings.
Hirankasi said that the construction business needs to adapt to be more consistent with ESG megatrends. Construction-material manufacturers now place increased emphasis on eco-friendly material products and carbon-footprint labels on products. For example, hydraulic cement is a product which helps to reduce energy and CO2 emissions in the manufacturing process, and the manufacturing process of house paints uses innovative technology to extend longer product life and consume fewer resources.
She said that contractors have increasingly shifted towards green building, starting from structural design, material selection, construction, and building maintenance. All processes can potentially reduce the emission of greenhouse gases and are eco-friendly.
According to the Global Construction Survey published in Q2 2021, Thailand’s green construction industry is expected to record a CAGR (compound annual growth rate) of 12.5% during 2021-2025. ”Overall, Thailand’s green construction output will increase from US$13.77 billion in 2021 to reach $22.05 billion by 2025,” Hirankasi added.
Technology and CE market
With an active interest in using sustainable aggregates and construction materials in the construction industry on a global scale, Hunger said that CDE Asia is the technology partner to enable global industry giants to recover high-value construction aggregates from assorted urban waste.
He said that CDE Asia has collaborated with Uawithya Machinery Limited, a world-class solutions provider to Thailand’s extractive industries, to set up a sand-washing plant in the Chonburi district near Bangkok to convert waste material to M-sand and green construction aggregates.
CDE Asia has also installed and launched its Combo Alpha-i plant for Thepsila Group, a renowned sand and gravel supply company in Thailand.
“Besides, we have patented Combo sand-washing unit features, the latest mobile sand-washing technology that can wash the dirtiest of crushed rock sands and deliver sand with consistent specification, with complete removal of silt and clay and assured cleansing of deleterious fines,” he said.
The near pin-point accuracy of modern sand-washing technology has far surpassed older methods which are prone to cause environmental hazards and water wastage and cannot achieve the precise gradation and quality demanded of industrial sand.
In 2022, Hunger said Uawithya Machinery's client – Sanon - using CDE Asia's eco-friendly machinery, was awarded the Green Mining Award by the Department of Primary Industries and Mines as the best quarry to operate with environmental care.
Hirankasi said that not only challenges but opportunities too existed in the construction equipment market in Thailand.
While the challenges included price competition from imported goods, especially for steel, ceramic tiles, and sanitary ware, and the high operating cost for construction projects caused by increasing construction material prices, the opportunities for the CE market are plentiful due to megaproject investments (especially in the EEC), which will be another key growth driver in 2023-2025.
“Even the gradual recovery of the real estate sector and continuing investment and facilities, including construction investment from FDI, especially from China in neighbouring countries, are among the opportunities for the sector,” she added.
Volvo CE is not lagging behind its competitors in these three countries. “We are actively participating in tenders and offering premium equipment and services to customers and contractors in the segment along with our local dealer ITI in Thailand and TCMP in Viet Nam respectively,” Chua and Shee said.
In the Philippines, Volvo CE’s Peng said the brand had sold many machines through its local dealer, Civic Merchandising, to key local contractors who are involved in major works. They include the Navotas reclamation project and the Legaspi Development project.
Sandvik plant
Makapa Corporation in the Philippines, based in the Bicol region, is operating a Sandvik UJ300 wheeled jaw crushing unit together with a tracked QA335 Doublescreen to process river gravel, which is used to produce material for Makapa's own construction company.
Some of Makapa’s work has involved construction of flood-control structures and drainage systems to protect lives and properties against major flooding in the area. One of its latest projects has been processing riverbed gravel to produce sand and gravel for consumption at its construction sites.
Sandvik UJ300 is a primary crushing unit assembled on a single trailer frame and mounted on a double-axle bogie. Electrically driven, it has been designed to offer simple and user-friendly operation aimed at high-capacity production at a low cost per tonne. Suitable for use in various applications, its design enables quick set-up and ease of maintenance, resulting in more uptime and higher productivity.
For Makapa, the UJ300 is ideally suited to its river gravel application. The grizzly feeder system, which has adjustable openings and a by-pass chute for greater flexibility, has a wire-cloth screening element beneath, which enables efficient removal of natural fines.
The material is then fed into the Sandvik jaw crusher, a single-toggle type, which possesses a deep, symmetrical crushing chamber for smooth material flow and high reduction efficiency, as well as hydraulic push-button controls for simple operation. A soft starting crusher for trouble-free operation and a frequency inverter for feeder speed control are also fitted to optimise the feed and make the crushing process easier.
To size the products, Makapa selected the Sandvik QA335 Doublescreen. The QA335 is a highly productive unit that comes equipped with a heavy-duty Doublescreen system.
This technology features two high-velocity, angle-adjustable screens, where both the primary and secondary screening angles can be adjusted to optimise screening performance and accuracy.
