Plastic industry in crisis, 2,000 units down their shutters

Over 20% of plastic companies had to shut down because of high interest rates, so the issue “how to help the firms overcome current difficulties” was concerned in the recent conference held in HCM City by Vietnam Plastic Association.
Ho Duc Lam, Vice Chairman cum General Secretary of VPA said 20% or more than 2,000 plastic enterprises had to be closed due to they could not afford the lending rate of 20-22% a year.

The industry officially has 1,064 firms capitalized at over 500 million dong, so most of them are sized at small and medium, citing from data of the General Statistics Office (GSO). So in the current context, these SMEs are facing the biggest difficulty that is capital.

In addition, the trade of the industry is imbalanced seriously, exporting $1.5 billion a year but importing nearly $4 billion for production inputs. Therefore, according to VPA, expected adjustments in forex rate by the year end will cause a lot of challenges for plastic companies.

Factually, to make a plastic product for the market, the enterprises have to import 80-85% of materials and additive inputs. While material cost accounts for 70% of production cost, but the sector only focuses on making common products with cheap prices to compete with China-made plastic products.

Dr Le Dang Doanh, former Head of Central Institute for Economic Management (CIEM) said that this was the difficult period for entire economy. Plastic companies as well as other industries should call on capital to change to joint stock firms, sell some assets to raise capital; avoid borrowing at high costs. The plastic industry can expand to new markets, pay attention to new potential markets such as Laos, Cambodia and Myanmar [Burma].

As a lender, Deputy General Director of Techcombank, Pham Quang Thang said that his bank launched a credit product for plastic companies whereby the firms will be provided secured loans of maximum 100% of input costs (lending under forms of mortgage, cargo, transport vehicles or debt collection option. Also the enterprises can get supports in cooperation with foreign partners, especially in terms of payment.

“Many firms set a growth target of 50-70% so they are planning or have borrowed a huge capital amount, but as asking loans, if they do not have clear business plans, banks will not disburse”, Thang noted. “Therefore, they should build a good relationship with several banks who can ensure liquidity”.

Plastic firms also have to review loan portfolio. At this time when forex rates are stable, they should ask US dollar loans to gain advantages. – Vietbiz24

Tags: Vietnam plastics industry