Plastic Industry before Challenges of Economic Integration

The Ministry of Trade forecasted that plastic product export value of Vietnam will reach US$500 million in 2006 and jump to US$1.3 billion in 2010. The Vietnamese plastic products can be exported in large volumes due to the high world demand (US$200 billion in 2005, up 8 per cent against 2004). However, more than a few difficulties are waiting for Vietnam’s products ahead.

 

Under the plastic industry development plant until 2010 by the Ministry of Industry, the Vietnamese plastic industry has obtained a stable and long growth. In recent years, the annual growth rate of this industry still remains at 20-25 per cent and is forecast to stay within this level until 2010.

 

Especially from now until 2010, the plastic industry will increase the local material ratio in its products to over 50 per cent and local materials will gradually replace imported ones. Additionally, the Government also announced a plan to invest nearly US$1 billion to build and upgrade raw material production factories like PVC and PP to be able to cater for 50-60 per cent of the national demand for raw plastic materials.

According to Binh Minh Plastics Co., the products of the plastic industry in general and the plastic pipe sector in particular are in line with national economic growth. The Vietnamese economy is developing at 7-8 per cent while the growth rate of the industrial and construction sectors is about 11 per cent. The growth trend will remain in the coming time and the demand for plastic pipes for infrastructure construction is, thus, forecasted to be high. Plastic pipes are used for various fields like agriculture, industry, post and telecommunication. These statistics show huge development potentiality of the Vietnamese plastic pipe industry.

 

At present, Vietnam is home to some 30 plastic companies and Binh Minh Plastics is a famous trademark. Binh Minh has the most modern technology system in Vietnam and best quality products meeting international standards like ISO, JIS and ASTM. As to production output, Tien Phong Plastics Joint Stock Company leads the market with 25,000 tonnes a year (mainly for the northern market), followed by Binh Minh Plastics Joint Stock Company with 21,000 tonnes (mainly for central and southern markets), Dat Hoa Plastics Company with 12,000 tonnes, Minh Hung Company with 10,000 tonnes, De Nhat Plastics Company with 7,000 tonnes and Tan Tien Plastics Company with 5,000 tonnes. Additionally, the Vietnamese plastic products have good quality and are capable to consume in Southeast Asian markets, especially Laos and Cambodia.

 

Under the plan, several major products of the Vietnamese plastic industry have high growth rates, about 20 per cent a year and the plastic products for construction material production has an output increase of about 25 per cent a year. The potentiality is huge although the priority for the development of the construction plastic product group is not as high as high-tech plastic product group.

 

PVC plastic pipes are proven resistant to chemical, antirust, pressure resistant, easy to transport, heat insulating and easy to install. These pipes have quickly replaced metal and concrete pipes.

 

Currently, PVC pipes have been used in various fields like water supply and drainage systems, light industry, electric wire holders in energy projects and pipes for fibre optic cable system in post and telecommunication industry. HDPE pipes are widely used for water drainage systems in construction, industrial, transport and urban projects, irrigation systems and post-telecom underground cable protection system.

According to plastic firms, the demand for plastic materials has significantly risen in the world. The speculation of large countries like China and Thailand, together with global crude oil price increase have led to imported material price soar, which affects the production and business activities of the plastic sector.

 

The major materials of plastic enterprises are plastic powders and resins, which are made from petroleum, while up to 55-65 per cent of materials are imported. Thus, economic and political instability in major oil producers in the world like Iran, Iraq, Kuwait and Arab Saudi also has strong impacts on prices of plastic materials.

 

Nowadays, material costs make up 70-75 per cent of cost price. Hence, the price rise or fall in imported materials will have direct impacts on business results of plastic enterprises. From 2002 to 2004, material prices grew continually. In 2004 alone, the material prices rose 30-40 per cent but the selling price could not be raised. As a result, the sales volume increased but the profits fell. In 2005, the plastic materials were lower than in 2004 and became more stable.

 

The second challenge is how to reduce the material loss proportion and wastes in production and increase the recycling of bad items. The continual increase in transport costs from the oil price rise has significantly strong effects on the plastic sector because plastic pipes are very bulky.

 

Vietnam’s official admission to the WTO by the end of 2006 is also another influencing factor to the long-termed development of the plastic sector. Currently, due to barriers in import tax rates, customs procedures and import quotas, the import of finished plastic products is not encouraged. After the entrance of to the WTO, the import tariff rate will be reduced and the customs procedures will be simplified. These are great challenges for domestic firms because imported products will be massively available on the domestic market.

 

Further, foreign investors will be allowed to build plastic pipe production factories in Vietnam and their products will compete directly with Vietnamese ones. 

 

The plastic industry is now still reliant on imported materials. To have sufficient sources for domestic production, the industry has to import 1.5-5 million tonnes a year, regardless of hundred items of supportive chemicals.