Industry struggles with rising costs

Domestic producers are currently reconsidering business plans in order to maintain production, with power prices set to increase 15.28 per cent as of next month and a series of other critical domestic and imported inputs have risen in cost.

Several manufacturers had to re-schedule their production times to take advantage of off-peak power rates.

Director of Ha Noi Alcohol Factory (Halico) Ho Van Hai said that it was planning to install a new assembly line which would cost his company more than VND2 billion (US$98,000) according to the new electricity prices, forcing the company to reassess their production costs.

Halico has shifted production times for their bottling assembly to night in order to save power costs through off-peak electricity charges, Hai said, citing that would save his company around 20 per cent on their electricity costs.

Halico’s current assembly line in neighbouring Bac Ninh Province would shift from diesel to coal in order to save about 4 per cent of production costs, Hai added.

However, plans to use night shifts to save money, while helping small producers, could affect larger manufacturers as they would struggle to get their large workforces to switch production times, Pham Phu Cuong, general director of Nha Be Garment Company said.

He also voiced his anger at the unstable power supplies that manufacturers had already suffered, adding that his company’s Finance and Marketing Division were now reviewing the total overhead costs including power, fuel and transportation charges in order to re-calculate their finished products costs.

Businesses are being forced to consider two options. Firms may consider downsizing their operations if they cannot find ways of reducing their production costs, or may try to maintain production, but hike their product prices.

Rising electricity costs and staggered power cuts announced by Electricity of Viet Nam will push domestic manufacturers into even more difficult circumstances.

Chairman of the Viet Nam Cement Association Nguyen Van Thien said an increase in power prices would directly affect cement production as electricity and coal expenses make up 40 per cent of finished cement costs, with a tonne of cement produced consuming around 100Kwh of power.

“We were calculating total production costs. However, the cement sector is still trying to satisfy market demand, but we might have to increase our prices as input costs surge,” Thien said.

Besides increasing electricity prices, other critical commodities have increased since the beginning of the year. According to statistics, February’s consumer price index rose 1.98 per cent in Ha Noi and 1.68 per cent in HCM City.

Businesses now are under severe pressure due to increased lending interest rates ranging from 16 per cent to 23 per cent per year, the Vietnamese dong devaluation of 9.3 per cent against US dollar and increasing global input prices.

Although able to take advantage of exports due to the appreciation of the US dollar against the Vietnamese dong, the garment sector remains worried about cotton material price rises in 2011.

An official of the Viet Nam Textile and Garment Association said prices of cotton had hit a record of $3.5 per kilo.

Garment companies said they had coped with input shortages and increasing cotton prices by importing materials from America, West Africa, India and several countries in Asia.

Businesses said if interest rates did not begin to fall, many of them will be forced to go into liquidation. —VNS

Tags: Vietnam industries, Vietnam industry