Vietnam Hit by Raw Material Shortages: 7 Industries to Watch

Uncooked materials shortages are hampering international provide chains on account of geopolitical tensions and China’s zero covid technique. Such shortages have additionally impacted Vietnam. Vietnam Briefing examines seven industries which are significantly impacted and the way they’re dealing with the problem.

Regardless of international uncertainties, Vietnam’s financial system is recovering at a substantial tempo post-COVID-19. As per the World Financial institution (WB), Vietnam’s GDP progress in 2022 is projected to succeed in 5.5 p.c from a low of two.6 p.c in 2021 as a result of pandemic.

Nonetheless, challenges stay as the patron worth index (CPI) has been steadily rising to a seven-month excessive, recorded at 2.4 p.c in March, an increase of 1 p.c in comparison with the prior month.

The upsurge in costs has been primarily pushed by manufacturing value spikes, which have resulted from a extreme scarcity of enter materials for manufacturing throughout industries. In reality, mainstream industries are confronted with one other problem after COVID-19: surging prices and enter shortages, exacerbated by provide chain disruptions.

Right here, we look at the present scenario of the seven most affected industries amid the competitors of securing enter uncooked supplies.

Textile and garment trade

The Vietnam Textile and Attire Affiliation signifies that the prospects for the trade in Vietnam are brilliant in the long run, in mild of Vietnam’s reopening and implementation of a number of free commerce agreements (FTA). The textile trade is projected to generate as much as US$43.5 million for Vietnam’s financial system this yr below superb situations.

Nonetheless, the power of textile companies to satisfy orders are presently undermined by provide chain disruption on account of border closures in China as a result of pandemic, and surging prices as a result of Russia-Ukraine disaster.

China has lengthy been the main exporter of materials and garment equipment for Vietnam; between 50 p.c and 55 p.c of uncooked supplies and textile equipment are imported from China for Vietnam’s textile industries. Nonetheless, as China reveals no signal of abandoning its zero-Covid method, many shipments of materials and garment items are piling up at its ports, main Vietnamese garment companies to delay manufacturing and supply.

Textile producers in Vietnam face challenges and have been pressured to put orders with their Chinese language suppliers months upfront to safe enter supplies as Chinese language factories are pressured to function beneath capability.

The scenario has deteriorated as the worth of cotton has spiked. The Vietnam Cotton and Spinning Affiliation (VCOSA) recorded a spike in cotton costs imported from Brazil, the US, and India by 0.87 p.c, reaching round US$1,625 per tonne. This has eaten into the income of producers in Vietnam as it’s tough for them to go on the surge in worth to clients in a brief time period.

As well as, the US authorities on June 21 handed the Uyghur Compelled Labor Forestall Act which prevents corporations from importing items, together with cotton, which is from China’s Xinjiang area to the US. This has additional added to enter prices.

In an try to help the textile trade, the Ministry of Trade and Commerce (MoIT) acknowledged they’d velocity up the implementation of the event technique for the textile and footwear trade in direction of sustainability whereas trying to undertake cutting-edge know-how to improve the productiveness of the 2 industries.

Textile companies have made effort to diversify suppliers to loosen their dependence on China for enter.

Footwear trade

Vietnam boasts the third most outstanding footwear producer in Asia and the fourth worldwide. In 2020, Vietnam exported as much as 1.2 billion pairs of sneakers, making up 10 p.c of the worldwide shoe export market, in comparison with solely 2 p.c the yr earlier than.

Nonetheless, as Vietnam’s shoe producers import most of their uncooked supplies, from leather-based to different equipment, from China, the present lockdown of the nation has saved many companies from attaining uncooked supplies and lagging supply dates with international companions.

Digital trade

The semiconductor provide chain has been considerably disrupted as a result of below-capacity operation of producers the place lockdowns are but to be lifted, leaving digital companies, from outstanding ones like Intel and Samsung to SMEs, unsure about their future manufacturing.

Samsung  Vietnam held issues that the manufacturing of its new fashions is presently placed on maintain as a result of the cargo of parts from China by means of the Lang Son border gate is regularly disrupted. Regardless of the Lang Son authorities’s efforts to chop quick the customs clearance, China’s border gate shutdown has left Samsung’s plan of street cargo unfeasible.

In the meantime, Intel anticipates that the semiconductor provide scarcity can proceed into 2024. Whereas the scarcity is going on globally, main electrical companies should endure manufacturing challenges on account of disrupted shipments of parts whereas their suppliers fail to maintain up with in depth demand.  

At present, producers and the Vietnam Digital Industries Affiliation have petitioned the federal government to barter with the authorities of China on cushioning the border shutdown to make sure provide stream.

Wooden manufacturing trade

Vietnam’s wooden product trade has seen immense progress post-COVID-19 due to larger worldwide demand and the impact of varied FTAs. The nation’s timber and forest merchandise are exported to nicely over 140 nations worldwide, with a 2021 export worth of roughly USD 14.5 billion.

The Russia-Ukraine battle has disrupted a variety of Russian exports, together with timber. The availability of Russian timber to Vietnam’s producers has been impacted, leading to excessive prices.

Companies have sought to diversify their suppliers, together with timber from the EU and the US. Nonetheless, the steep scarcity has left companies competing to safe enter timber in the course of the interval of accelerating costs.

The stress can be on gas worth spikes; Sai Gon Buying and selling Manufacturing Improvement, a wooden furnishings producer, famous that wooden processing companies are presently fighting rising gasoline costs. As a result of inflation and rising costs, wooden product producers are reluctant to have interaction in new contracts with patrons.

Rubber trade

Vietnam’s rubber trade has been much more profitable than anticipated. In 2021, the export worth of rubber reached a 10-year excessive report, in response to the Vietnam Rubber Group. Its pre-tax revenue was at a excessive of US$260.8 million, surpassing 7 p.c of the goal and the after-tax revenue amounted to US$218 million, exceeding 10 p.c of the goal.

Nonetheless, the rubber trade has been hit by an enter deficit. Some extent to notice is that 70 p.c of uncooked supplies particularly chemical compounds are imported from China,

On account of these shortages, Vietnamese companies are participating different suppliers, reminiscent of Japan and South Korea. Nonetheless, the worth of importing from both nation is 15 to twenty p.c larger than from China. As well as, the accessible provide from the aforementioned nations is insufficient in comparison with that of China.

Agriculture

The livestock trade in Vietnam is being hit laborious additionally by the Russia-Ukraine disaster since as much as 90 p.c of the uncooked supplies for animal feed in Vietnam are imported. Since 2021, the worth of uncooked supplies, together with wheat, corn, and soybeans, has surged by 30 to 40 p.c as each Russia and Ukraine are the world’s prime wheat exporters.

The loss in earnings of Vietnamese companies within the trade can quantity to VND 50-100 billion on account of rising animal feed prices in addition to transportation prices.

Freight prices are additionally consuming into the funds of agricultural companies as it’s reported that sea freight prices have soared by 237 p.c in comparison with 2020, which means every container of merchandise now prices US$2,650.

Iron and metal

The steep fall in metal and iron provides is contributed due two primary causes. One, China has practiced an output management coverage for iron to make sure home demand. This has disrupted iron provide globally compounded by China’s border closures. Second, the Russia-Ukraine disaster has disrupted metal exports from Russia and Ukraine – two dominant metal exporters.

The value of metal in mid-2021 was at US$ 633 per ton, a surge of 31.5 p.c in comparison with the identical interval in 2020 whereas iron noticed a rise of round 25 p.c in worth in 2021was recorded in comparison with 2020.

Excessive inflation and CPI

The enter scarcity and rising prices have pressured producers and companies to go on larger prices to customers, consequently resulting in virtually a two-year excessive inflation charge. As of June 2022, an increase of three.37 p.c in Vietnam’s CPI) was recorded, in response to the Basic Statistic Workplace of Vietnam (GSO).

The value spikes throughout totally different client items as of June 2022, in comparison with the identical interval in 2021, are offered within the desk beneath:

Takeaways

The emphasis is now on how Vietnam can deal with the scenario relating to enter scarcity. The WB has steered structural reforms for the financial system to develop into extra resilient in occasions of turmoil and to scale up provide.

Tax incentive insurance policies for productive and modern companies, clear authorized procedures, and lowered obstacles to market entry are three pivotal steps the federal government can take a look at whereas companies search to diversify suppliers. The significance of creating a home help trade has additionally been highlighted by consultants with the intention to scale back the dependence on imports. Vietnam’s financial system is especially susceptible on account of its dependence on exterior commerce and its partnerships with international economies.