0QpUa0LN_Vietnam Plastics Briefing

8/3/2019 0QpUa0LN_Vietnam Plastics Briefing

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August 2008

VIETNAM PLASTIC INDUSTRY

Executive Summary

With an annual growth rate of 15-20% since2001, plastics rate as one of Vietnams highgrowth industries. Plastic packaging domi-nates domestic output but the government is

urging the industry to shift towards morehigh tech and value-added products, includ-ing items such as CDs and DVDs.

Currently the plastic industry relies heavily onimports and recent increases of raw materialshave strained the industry, forcing somemanufacturers to close. A number of otherfactors common to other industries limit itsdevelopment: under-developed infrastruc-ture, lack of skilled labor, branding, and pro-

duction scale. Of all these factors, the plasticssector most importantly needs to further de-velop Vietnams petrochemical supply in or-der to sustain its growth and competitiveness.


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Structure of the Plastics Industry

The plastic industry in Vietnam producesboth intermediate and final plastic goods (seeFig. 1). The sector however mainly serves asa supporting industry, providing plastic parts

or packaging, for other sectors.

Local Production

Plastics are a synthetic polymer (naturalpolymers include amber and rubber). At themolecular level, polymers are comprised of long chains of molecules. Different types of plastic vary by polymer chain length and theaddition of additives.

The plastic industry in Vietnam mainly proc-esses plastic granules and pellets. Accordingto the Ho Chi Minh Plastics Association(VSPA), there are approximately 2,800 plasticmanufacturers. A typical firm is small to me-dium in size, employing between 10-50 peo-

ple and producing at a small scale. Seventy-one percent of domestic processors fit such aprofile. Only ten firmsless than 1%operate on a macro scale, employing 1,000

people and with a production capacity of 1,500 tons/month.

Most firms operate in the South (83%), theindustrys geographic center. The majority of those firms are concentrated in Ho Chi Minh

city and the surrounding provinces of Ba Ria-Vung Tau, Binh Duong, Dong Nai and Long An(see Fig. 2). These provinces are appealing

Processed via:

- Blow molding- Extrusion- Injection molding

Source: Tractus-Asia

Ba-Ria Vung Tau

Ho Chi Minh City

Binh Duong

Dong Nai

Long An

Fig. 1 Plastic Industry Structure

Fig. 2 Plastic Industry Concentration in theSouth

Source: Tractus-Asia


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not only for their proximity to the large con-sumer market in Ho Chi Minh city and majorports, but some of the industrial zones havedeveloped one-stop investment services tosimplify administrative procedures (e.g., DucHoa I and II in Long An).

About 13% of firms are located in the northand 3% in the central region.

Output has risen steadily in the last severalyears with average output increasing 15%per annum. In 2007, total plastic output reached 1.88 million tons valued at $3.5 bil-lion (see Fig. 3). Output is expected to reachnearly 2.3 million tons in 2008 and 3.8 mil-lion tons by 2010. The majority of productsmanufactured domestically require low tech-nological capability, such as household plas-tic goods (e.g., chairs, dining ware and trashcans) and plastic packaging. Local produc-tion of these two product categories and forconstruction plastics satisfies almost all do-mestic demand. Approximately nine out of ten household plastic goods available in su-permarkets are made in Vietnam.

Domestically-produced plastic goods tend tobe manufactured from firms with less capitalto invest in technology and facilities. Asshown in Fig. 4, while privately held firms

generate most of the output, state-owned andforeign-invested firms tend to have morecapital investment. State-owned firms in par-ticular show the greatest difference betweenthe amount capital-invested (20%) and out-put (6%), which can potentially be attributedto inefficient use of resources or fewer firmswith higher technology but whose productionlevels are small in comparison to total indus-try output. Since 2007 when this informationwas published, the distribution has likelyshifted with the equitization of Vinaplast, a

former state-owned enterprise and the in-dustrys largest corporation.

Similar to other industries in Vietnam, suchas metalworking, the plastics industry im-ports its technological advancement via ma-chinery. According to the chairman of the HoChi Minh Plastics Association (VSPA), compa-nies are using second-hand machinery to se-gue into more modern equipment. Only thelargest companies, representing less than10% of the industry, have the capital to in-vest in more technologically-advanced equip-ment. Smaller companies tend to use cheaperand less high-tech equipment from China and

Taiwan. Nearly 2 out of 3 of all the plasticinjection machines found in the country arefrom the 1990s, mainly used to producehousehold plastic items. More advanced

7% 5%

13% 13%8%

16% 18%22%

39%

19%

0

500

1000

1500

2000

2500

3000

3500

4000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

V o

l u m e

( t h o u s . t

o n s

)

0

5

1

1

2

2

33

4

4

Source: Vietnam Plastics Association

Fig. 3 Vietnam Plastic Output

72%

6%

22%

45%

20%

35%

0%

20%

40%

60%

80%

Privately-held State-owned Foreign-invested

Firm Type

P e r c e n t a g e

Output Capital

Source: Vietnam Plastic News

Fig. 4 Capital Invested & Output


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equipment are found in countries with moredeveloped plastic industries producing elec-tronics and automobiles, such as Japan andthe US.

Raw material supplyor the lack thereofisthe chief issue concerning the industry. Sev-enty to ninety percent of materials aresourced outside Vietnam. Most raw materi-als are supplied from abroad which comprise70-75% of the cost of the finished good. Thisleaves the industry with small marginal

added-value and even limits potential export growth due to loss of cost competitiveness.For example, Vietnam plastic exports to Aus-tralia face tariff rates of at least 10% less thansimilar products from China however theyare less competitive due to production costsand scale.

Inflation poses another serious issue for theindustries in Vietnam. With the devaluationof the Vietnamese dong, it is more expensivefor firms to purchase imported products.Plus, measures to curb inflation by raisinginterest rates and limiting loans, have alsoincreased the cost of obtaining capital. Theprime interest rate has increased 3 times

since January 2008, hitting 14% in June.

Industry growth is also hindered by severalother factors. According to the Vietnam Plas-tics Association (VPA), exporters are not pro-ducing the quality, quantity and variety of products that importers demand. Specifically,quality is related to the availability of modernequipment (and the capital to invest in tech-nological improvements), with goods pro-duced from more advanced machinery meet-ing higher quality standards. Companies also

lack brand recognition. Even though whenproducers meet international quality stan-dards, they have to price their products lower.Without strong branding, plastic manufactur-ers in Vietnam are hit harder when the cost of raw materials rise and they are unable toraise prices accordingly. Low worker produc-tivity, lack of professional skills and inefficient

company management are other industryweaknesses.

Imports

The plastics industrys dependence on im-ports can be largely attributed to the coun-trys undeveloped petrochemical industrywhich has not kept pace with productiontrends. The plastic products that the indus-try is producing the most ofPP and PEthecountry does not have capability of supplyingthe raw materials for. Since 2000, these twoplastics have comprised 50-60% of the indus-trys output. All refined oil, the by-productsof which are used to produce plastics, is im-ported since Vietnam does not have any re-

fineries. This is expected to change by 2013however with the completion of 3 oil refiner-ies, the first of which is schedule to begin op-eration in February 2009 with a capacity of

Photo by: An Phat Plastics Co


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6.5 million tons/year. Only two companies,Thai Vina Plastics Co (TPC) and Phu My Plas-tics, currently produce PVC resin, meeting 60-70% of domestic demand. LG Vina Plastics

is the sole producer of DOP, an additive that softens and adds more flexibility to plastics.Moreover, some inputs produced domesti-cally cost more than imported equivalentsand are thus uneconomical to use.

Starting in 2010, the first of a series of petro-chemical plants are scheduled to begin op-eration, producing much-needed olefins,polyolefins and other polymer products (see

Table 1). These projects are critical to devel-oping the countrys attractiveness as a plasticmanufacturing destination.

In 2007, Vietnam imported over 30 kinds of plastics resins totaling 1.66 million tons, a22% yoy increase. These imports were val-

Company Province Product Capacity(thousand tons)

Status

LG Vina Dong Nai DOP 30 in operationPetroVietnam & LG Intl. Quang Ngai Propylene & PP 150 2010PetroVietam; Mitsui; Idemitsu Kosan &Kuwait Petroleum Intl.

Thanh Hoa Propylene & PP 350 end 2013

PetroVietnam; Siam Cement Group &Vinachem

Ba Ria-Vung Tau

Ethylene 1,650 2013PE & PP 1,450 2013Chlor-alkali 280 2011EDC* 330 2011VCM* 400 2011

Phu My Plastics(JV between PetroVietnam, Tramatsuco & Petronas)

Ba Ria-Vung Tau

PVC 100 in operation

SP Chemicals Phu Yen Ethylene 800 2014

TPC Vina Chemical & Plastic Corp(JV between Vinachem, Vinaplast, Thai Plastic & ChemicalsPublic Co Ltd, a consolidated associate company of SCG)

Dong Nai PVC 100 in operation

Viet-Thai Plastchem (SCG subsidiary) Binh Duong PVC 15 in operation

Table 1 Petrochemical Plants and Projects

Source: Public information Note: * used in PVC production

531 551

907 9781119 1147

1315

1659

0200400600800

10001200140016001800

2000 2001 2002 2003 2004 2005 2006 2007

A m o u n

t

Additives ($mn)Resin (thous. tons)Machinery ($mn)

Source: Ho Chi Minh City Plastics Association and Vietnam Plastics Association

* Note: 2007-2008 data for imported machines were not available and are estimated based on the av-erage annual increase of those imports from 2000-2005 (35%).

Fig. 5 Imported Materials for Plastic Production


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ued at $2.5 billion. The per annum increasein plastic resin over the last several years hasaveraged 19%. Asian countries, mainly Thai-

land, Taiwan, South Korea and Singapore,supply the majority (85% in 2007) of plasticmaterials to Vietnam. PE and PP comprised65.5% of imports in 2007, followed by PS(9%), PVC (5%), Polyester (5%) and otherplastics are imported to a smaller extent.

The imports rates for additives have re-mained consistently high. They did not go

below 17%, with the exception of 2003, whenthey increased by only 7%. From 2006-2007,imports additives increased from 309-406million tons (31%).

The import rates for plastic machinery hasshown greater fluctuation than the othersranging from 3% to 100%. 2005 is the latest

year that data is available for machinery im-ported specifically for plastic manufacturing.In that year, manufacturers imported $164million worth of equipment, representing 3%of the value of machines imported for all in-dustries. Equipment for the plastics industryoriginates from many countries, such as theUS, Japan, Taiwan and Germany.

This reliance on imports leaves the industryvulnerable to worldwide price changes of in-puts. In the first six months of 2008, theprice of plastic grains increased by 50%,reaching $2,000-2,200/ton. In that same pe-riod, the total cost of producing plastic(inputs and associated manufacturing costs)doubled.

These rapid price increases threaten the bot-tom line of plastic manufacturers. Despitethe rising prices of inputs, producers

hoping to retain customershave onlypassed on a fraction of the increased costs,raising prices by only 15-20%. Some other

manufacturers, rather than increasing prices,have opted to operate at lower capacity oroperate at a loss. Many small and mediumenterprises without the capital to sustainthemselves through this period have exitedthe market. To aid the industry, the govern-ment does not tax imports of ethylene and itsrelated petrochemical derivatives (e.g., PPand PE), a fact that while reduces the impact

of rising prices, does not offer a solution tothe supply issue.

Using agricultural waste products and recy-cling industrial scrap and used plastic are un-derutilized production alternatives. Incorpo-rating agricultural products into the manu-facturing process has only emerged within

the last few years in Vietnam. Only a smallnumber of companies use this method, sinceit has not been well-marketed or publicizedin the industry. Unclear regulation limits thelatter alternative. Vietnamese law does not define plastic scrap and used plastic fromwaste. Thus companies are unable to consis-tently import this material. According to

Photo by: An Phat Plastics Co.


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Vietnam Plastics Association (VPA), plasticwaste products that do pass inspection arerequired to go through a cleansing processthat would make the alternative as expensiveas using new raw materials. The VPA isworking with the Ministry of Industry andTrade and Peoples Committee of Ho ChiMinh city to create a centralized system todefine polymers by 2010.

Exports

From 2005-2007, the export growth rate in-creased from 36% to a high of 53%. In 2008,export growth is expected to taper off to41%. While plastics exports have been grow-ing rapidly, compared to other Asian nations,Vietnam is only an emerging exporter of plas-tic products (see Fig. 6). In 2006, China ex-ported $22 billion and Singapore $7.6 billion

worth of plastics. This can partly be attrib-uted to the fact that other countries havemore established plastic industries. Thailandfor instance has processed plastics since the1960s and started to develop its own petro-

chemical industry in 1977, three decades ear-lier than Vietnam.

The Vietnam plastic industry exports 40 dif-ferent kinds of plastics to 48 different coun-tries. However, the major exports are low-value added productsplastic packaging andother consumer goods, such as plastic lamps(see Fig. 7). In 2007, Vietnam exported$725mil worth of plastic products, an in-

crease of nearly 50% from 2006. Although, asignificant part of that increase (40%) wasdriven by rising prices. The main markets forVietnamese-manufactured plastics in 2007were: Japan ($126mil), US ($137mil) and

Fig. 7 2007 Exports by Product CategoryConstruction

1%Consumer goods

19%

Packaging80%

22,224

7,583

6,490

4,475

1,738

567

341

10.7

0.6

0 5,000 10,000 15,000 20,000 25,000

China

Singapore

Thailand

Malaysia

Indosnesia

Vietnam

Philippines

Cambodia

Laos

Value ($mn)Source: UNCTAD

Fig. 6 Plastic Exports Among Asian Countries (2006)

Source: Vietnam Plastics Association


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Cambodia ($44mil). Other countries import-ing these goods include Singapore, Philip-pines, and South Korea and to a smaller ex-tent EU countries, such as Lithuania, Estoniaand Hungary.

Market AccessBarriers to Entry

Aside from price of raw materials, the plasticindustry in Vietnam faces issues common inother industries: unexpected power outages,under-developed infrastructure and legal

system, and unclear and inefficient adminis-trative procedures. Lack of skilled labor isanother shared concern. While the plasticssector requires less labor-intensive work compared to the garment and textile indus-try, skilled workers are needed to operate themachinery. There are several universitiesoffering majors in polymer-related subjects

and whose graduates are subsequently re-cruited by plastic companies. However, thenumber of students graduating is still not enough to meet demand. Furthermore, firmscomment that recent college hires tend tohave theoretical rather than practical experi-ence.

Opportunities

Domestic demand for plastic has risen nearly12% on average each year since 2001, reach-ing 25 kg/capita in 2007, and that demandwill only increase in the coming years. By2010, the government wants to boost percapita plastic consumption to 40. Contribut-ing to that, a number of industries in Vietnam

that utilize plastic goods are expected to in-crease production. In the automotive sector,companies such as Toyota and Daewoo planto increase output by up to 25% in the next

few years. Motorbike output is expected toincrease by 2-2.2 million units annually upuntil 2015, presenting a significant opportu-nity for plastic manufacturers to supply plas-tic frames and other accessories.Globally, chemical giant BASF forecasts that plastic demand is projected increase by 6.8billion kg annually, reaching nearly 230 bil-lion kg by 2010. In both these markets thedemand will only increase as the populationincreases and there are more consumers andincreasingly more applications for plastics.

The Vietnam plastic industry also has the po-tential to grow by increasing its market sharein select countries. For instance, in the USand Japan, the top importers of Vietnam plas-tic products, Vietnam holds less than 1% andabout 5% of the market respectively. Inother markets, Vietnamese exports have only

recently entered into Africa, the Middle East,China, India, Russia and Eastern Europe.Over time improvements in quality, brandingand price will only make Vietnamese prod-ucts more internationally competitive.

The industry is also receiving support fromthe Vietnamese government. Plastics, alongwith telecommunications, steel, textiles andgarments, is identified as one of the target industries up until 2010. A status that grantsplastic investment projects priority to receiveland in industrial zones and other areas aswell as general trade promotion at eventsand government funding for research and de-velopment. Moreover, through PetroVietnamand Vinachem, companies in which the State

holds shares, the government has invested inseveral projects to manufacture polymersand other petrochemical products for the in-dustry.


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Future Trends

With the country focusing on developing hightech industries, the technological capabilityof the plastic industry will follow suit to pro-duce intermediate goods requiring greatertechnical and precise manufacturing.

Plastic production in the north will seegreater activity as the government plans toshift more of the industrys concentrationfrom the south. As outlined in the 2006-2010

development plan by the Ministry of Industry,the plastic industry in the northern, centraland southern regions will be concentrated31%, 9% and 60% respectively.

References

Asian Federation of Plastic Industries,2007, AFPI Directory 2006-2007 Business Wire, 2007, According to theBASF, Per Capita Consumption of PlasticsWould Increase to More Than 300lbs by2010 As Compared to 223lbs in 2001 inUSA - Bioplastics Market Trends and U.S.& E.U. OutlookDin n u TN c Ngoi, 2008,Chuyn Trang: Cng Nghi p Nha Vit NamHBnh Minh, Reuters, 21 July 2008,Vietnam, Siam Cement in $3.77 bln Pet-rochemcial DealLao ng, S49, 4 March2008 PetroVietnam tham gia d n Th p ho d u Long S n 3,7 t USDMinistry of Industry and Trade, Circular No. 03/2008/TT-BCT, 14 March 2008Nguyn Duy Ngh a, Vietnam EconomicNews, 2007, Raising Up a Support Indus-tryNhn Dn, 2008, Oil Refinery and Petro-

Chemical Complex Impetus for Develop-ment of Nghi Son EZPetroVietnam, 2008, Gi i Thiu Tpon: Lin Doanh, Phng Xun Nh , VNU Journal of Science, Economics-Law , 2007,No. 1, A Perspective on Industrial Devel-opment and Industry University Coop-eration in VietnamPrime Minister, Decision No. 55/2007/QD-TTg, 23 April 2007Saigon Times Daily, 7 July 2008, pg 1,Plastics Industry Hit Hard by MountingMaterial PriceTh i Bo Kinh TSi Gn, 2008, Ph Tr ng Thng Tin Qu ng Co, Nha vCao Su Vit NamUNCTAD/WTO, International Trade Cen-ter, 2006, "Trade Performance HSVietnamNet, 2008, Business in Brief 9/1:Plastics Rake in 700 Million USD in Reve-nuesVietnamNet, 2008, Plastic Industry Gen-erates $200mil in Q1"VietnamNet, 2008, Plastics IndustryStrives for Bigger, Better Export Targets"Vietnam Plastics Association, 2008, Lmg bnh n gi th tr ng nguyn li unha?Vietnam Plastics Association, 2008,Thng Tin ng Ch VNgnh Nh aNgy 21.04.08Vietnam Plastics Association, 2008,Thng Tin ng Ch VNgnh Nh a,Ngy 28.04.08Vietnam Plastics Association, 2008,Thng Tin ng Ch VNgnh Nh a,Ngy 04.07.08Vietnam Plastics Association, 2008, Viet-nam Plastics Directory 2008-2009Vietnam Plastic News, 2008, Cho PhpNhp PhLiu: C Cng NhKhngVietnam Plastic News, 2008, Ngnh Nh aLao ao Theo Gi Du


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HO CHI MINH CITY164 Nguyen Van Thu

District 1, Ho Chi Minh City, VietnamTel. +84.8.291.2205

Fax. +84.8.291.2206Email: [email protected]

SHANGHAIZhaofeng Universe Building

Suite A, 22nd Floor1800 Zhongshan West Road

Shanghai 200235 ChinaTel. +86.21.6440.0990Fax. +86.21.6440.3173

Email: [email protected]

BANGKOK75/63 Richmond Office 17th FloorSukhumvit Road, Soi 26 Bangkok

10110 ThailandTel. +66.2.260.8200Fax. +66.2.260.8280

Email: [email protected]

HONG KONGSuite 2302, 23/F

Chung Kiu Commercial Building47-51 Shantung Street

Mongkok, Kowloon, Hong KongTel. +852.2311.0788

Fax. +852.2311.5909Email: [email protected]

Reported by Leah K. Tran, Research Analyst

Copyright 2008 Tractus Asia Ltd. All Rights Reserved.

http://www.tractus-asia.com/

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