Local firms have taken a gut blow with the latest price hike of petroleum products after getting hit hard by simultaneous spikes in the prices of petroleum products, electricity, and cooking gas last month.
Many have stopped production but do not dare to announce bankruptcy for fear of bank foreclosure, according to newswire Vnexpress.
“Enterprises are struggling with so many difficulties, and now we have to live with constantly-rise costs in the face of declining sales,” Truong Vinh Tho, head of the import-export department under Sunhyun Footwear Co, told VnExpress.
“Our orders, which have been dropping since late last year, have dropped by 25 percent year-on-year, while the transport costs for end products and materials from our plant to the ports/airports and vice versa have been on a stable rise.”
The price hike will not only affect production cost but will drag revenues down due to reduced purchasing power.
“When fuel prices go up, we have to endure the costs by accepting some losses in the short term, but in the long term we have no choice but to adjust prices. When retail prices are pushed up, they will scare off our consumers, “said Tho.
“The price of gasoline will affect our income and create at least a 10-15 percent reduction in our revenues, as our goods are transported to be sold nationwide,” said Vu Ba Duc, director of Duc Viet Stainless Steel Co.
Similarly Pham Dac Vinh, director of Dac Vinh Co, which specialises in fresh food – agricultural goods in the central city of Da Nang, said that so far the firm has faced a “constant headache” with many difficulties, such as accessibility to bank loans, and now the burden of rising petroleum product prices will exhaust it.
Tran Thai Binh, director of Hoang Gia fruit and vegetable processing firm, said that the rise will affect two aspects, including production cost and consumer psychology.
“People will be more afraid of possible future price hikes and will spend less. As a result, purchasing power will certainly be reduced.”
“We export about 20 tonnes of vegetables to Europe per month, but this number is likely to drop in the near future because of the price hike,” Binh said. As vegetables are not really essential goods in the horticulture basket, customers will be ready to cut spending on them when prices increase.
In hot water
Pham Chi Cuong, chair of the Vietnam Steel Association, said that the price hike will add some VND20,000 into the production costs of every tonne of steel produced, as steel production needs heavy oil, which was increased some VND500 a kilogram.
“Each year the steel industry produces about 5.5 million tonnes. With an increase of VND20,000 per tonne, the steel industry’s production costs will increase by VND110 billion, a big number in the context of stagnated consumption,” he said.
The higher gasoline price will be an even larger burden for the steel industry as it will be added to transport costs.
The VND2,400 added into every litre of gasoline will push transport costs up, while the steel price cannot be increased in such a context. Steel prices are at VND15-16 million VND per tonne
Since the price of steel scraps and casts on the world market remain high, the simultaneous price hike of petroleum products and utilities will make it very difficult for steel businesses to survive.
Meanwhile, steel consumption in the first seven months of the year was only 2.5 million tonnes, down 7 percent over the same period last year.
“There have been a few firm reporting business stoppage, but they can’t declare bankruptcy for the fear of bank foreclosure. Those businesses are like the living dead,” Cuong said.
Cement manufactures are also struggling for survival.
As electricity and fuel accounts for 40 percent of the production cost of cement, the costs will go up 6-7 percent with a total increase of up to VND2,400 per litre of gasoline.
Moreover, the average price of electricity sold to cement producers has increased by nearly 45 percent, from VND948 to VND1,369 per kWh. Meanwhile, domestic cement consumption reached 23.6 million tonnes in H1/2012, down 10 percent over the same period last year.
In the current context of oversupply and shrinking demand, local cement firms have launched many promotion and discount programmes to clear stocks. So, any price hike input costs will be a real blow to the industry.
Vietnam Cement Association chair Nguyen Van Thien said the simultaneous price hikes are pushing the cement industry into a corner.
On August 1, barely a month after the electricity price increased 5 percent, the prices of both gasoline and cooking gas surged by VND900 per litre and VND52,000 per 12-kilogram cooking gas cylinder, respectively.
The prices of petroleum products rose for the third time in a row on Monday, at a range of VND500-1,100 per litre.
Since the beginning of the year, petroleum products have gone up and down five times each. But the total rise is VND5,400 per litre, while the total reduction is only VND3,200 per litre.