Material shortages make enterprises suffer

Garment, wooden furniture, footwear and paper producers all rely heavily on material imports. They have been facing expansive difficulties because import material prices have been increasing vigorously.

According to the Ministry of Industry and Trade, import prices for many kinds of materials have been increasing quickly. The cotton price, for example, has increased by 25 percent, fibre by 34 percent, timber material by 25-30 percent, plastic by 43.7 percent. As the market has recovered, the demand for production materials has risen again and pushed prices up.

Between the devil and the deep blue sea

The increases have added big burdens to companies, especially garment manufacturers, because the industry relies 80-90 percent on material imports.

The cotton price has surged to $1.9 per kilo now, an increase of $1.4 per kilo compared with the beginning of 2010 and double that of the same period of 2009. The price is expected to increase even further as India has recently prohibited cotton exports to protect their textile industry. Fabric prices have also increased by 10-20 percent.

Chair and General Director of Viet Thang Textile and Garment Corporation Nguyen Duc Khiem reported that fibre prices have increased steadily by 10 percent every month since the beginning of 2010. Especially, visco fibre has seen the sharpest increase, now trading at $2.7 per kilo, while cotton fibre has soared to $1.6 per kilo.

The material price increase is also a headache for wooden furniture producers. The timber material price has increased by 20 percent, while fir imported from New Zealand has risen by 40 percent over the same period of 2009 to $255 per cubic metre.

Despite these increases, Vietnamese enterprises cannot raise prices because they fixed prices and signed export contracts half a year ago. While import material prices have increased by 25 percent, export prices on garment, wooden furniture and plastics have increased by only 5-20 percent. That explains why the more enterprises produce, the bigger the loss they suffer.

Tran Phuc Hong, Director of the Kim Son Wooden Processing Company revealed that his company is fulfilling an order from a German partner. The contract was signed three months ago and will be fulfilled in September. If material prices keep rising, the company will incur heavy losses from this deal.

Domestic market also suffers

Not only the enterprises producing export goods, but also companies that produce and provide commodities for the domestic market are hurting.

In the first quarter of 2010 alone, Vietnam imported 97,300 tons of plastic materials, worth $153 million, an increase of 12.4 percent in quantity and 73 percent in value compared to the same period in 2009.

Do Nguyen Thanh, Deputy General Director of Sam Phu Plastics Company, remarked that the company plans to expand production and needs some 1000 tons of plastic powder. Yet plastic powder prices have surged to $1020 per ton, higher by $300 tons over 2009. “If material prices keep rising, we will have to raise prices in the domestic market accordingly,” a producer admitted

Pulp prices have also escalated to $1000 per ton, double that of 2009. Vu Huy Tien, Director of Binh Minh Package Company, explained that the company must raise prices by five percent, because even scrap paper has surged to $300 per ton, increasing by $220 per ton in comparison with the same period of 2009.

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Tags: Vietnam Footwear, Vietnam Garment industry, Vietnam paper, Vietnam paper industry, Vietnam wooden furniture