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Plastic enterprises stumble as prices of raw materials escalate

From the beginning of March to now, many plastic manufacturing companies have had to send price increase letters to their customers, blaming the breakdown of the supply chain of plastic materials from the US, Europe, and China. This difficulty combined with the lack of empty containers for transportation has caused the cost of plastic materials to sharply soar.

Plastic enterprises stumble as prices of raw materials escalate

Production at a plastic enterprise. (Photo: SGGP)

An increase of more than 30 percent

Typically, in a notice sent to customers on March 10 of Hoa Sen Group, the representative of this group increased the prices of PVC pipes and fittings by 30 percent compared to the previous ones. The group explained that the cost of plastic materials had continuously climbed from the last quarter of 2020 to now. In the same situation, Mr. Nguyen Hoang Ngan, CEO of Binh Minh Plastic Joint Stock Company, said that his company had not dared to announce its operation plan in 2021 because the prices of raw materials escalated rapidly from the beginning of the last quarter of 2020 until now. This crisis is caused by the fact that up to 60 percent of plastic materials for domestic production are imported. Meanwhile, the production and transportation of plastic materials in the markets, which are suppliers of Vietnamese enterprises, are facing difficulties.

The survey by the Vietnam Plastic Association shows that Asia is the region using the largest plastic materials in the world, but the local supply only meets more than 70 percent of the demand. The rest of the supply must come from Europe and the Middle East. However, from the fourth quarter of last year, the supply in Europe and the Middle East has been interrupted because logistics activities have been stagnant. National blockade orders or tightening disease control have caused trade of enterprises to prolong. The shortage of empty containers has become serious, and transportation costs have also highly increased.

For the largest plastic material supplier in Asia, China, there was another difficult situation. In February, many manufacturers in this country took a long holiday. This combined with the disruption of shipping activities in Europe and the Middle East has made the domestic supply of plastic materials plummet heavily.

Facing this situation, many domestic companies had to find alternative sources in Thailand and Indonesia. However, taking advantage of the scarcity of plastic material supplies in the market, many companies in these two countries have continuously increased their prices. From the beginning of the year until now, the suppliers of plastic materials in Indonesia have increased their selling prices four times. The prices of plastic materials in the market are estimated to have increased by about 30 percent compared to the same period last year.

Innovating and improving product quality

According to a report by the Vietnam Plastics Association, the growth of the plastic industry is expected to maintain at 6.5 percent in the 2019-2023 period. The two segments that account for the largest proportion in the value structure of Vietnam's plastic industry are packaging and construction plastic, which are still expected to be the main growth driving force of the industry. So how can this target be achieved in the context that the prices of raw plastic materials climb steeply?

Mr. Le Tuan Anh, CEO of Cat Thai Production and Trading Co., Ltd., said that leading FDI enterprises usually appoint partners to supply raw materials for supporting enterprises in their supply chain. These enterprises are allowed to adjust the selling prices of raw materials but must follow the rule of every three months. When the leading FDI enterprises accept the price adjustment of raw material suppliers, it means that the purchasing prices of supporting industry products of manufacturing enterprises in the supply chain are also adjusted. This will eliminate risks, product price hikes, and unsalable situations. However, to do so, enterprises need to make efforts to innovate and improve product quality to be able to join the global supply chains of large corporations.

From another perspective, enterprises whose market share is not in the supply chains should strive to change production technology, at the same time, proactively grasp, and closely follow market developments. First, in the medium term, the source of raw materials for production still depends on imports. At present, the Ministry of Industry and Trade (MoIT) has assigned trade commissioners to expand the search for the supply of raw materials for production, including plastic materials for domestic enterprises, helping them to diversify markets for importing raw materials. Besides, the MoIT said that manufacturing activities in China have recovered after a long holiday, which is expected to cool down the scarcity of plastic materials in the market next month. Moreover, the ministry has been working with authorities to remove difficulties that have been disrupting the logistics activities of enterprises.

By Minh Xuan – Translated by Thuy Doan

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