VietNamNet Bridge – Many Vietnamese enterprises thought that they would make fat profits when they could sell fibers to Chinese businessmen at high prices. However, it later turned out they took a loss because they had to buy materials at higher prices.

At first, T textile and garment company in HCM City believed that it could make a profit of 40 billion dong in the first month of 2011, thanks to the deal of selling fibers to Chinese businessmen at high prices. However, later, the company had to purchase materials at higher prices. Just within one month, the company lost two billion dong.

The domestic fabric and fiber market has been fluctuating alot recently, since Chinese businessmen have been pushing up the collection of materials from Vietnamese companies.

Chinese businessmen collected goods, pushed prices up

Chinese businessmen began collecting goods last year, while the fiber price reached its peak in late 2010, and the first months of 2011.

“They collect fiber materials mostly from small or medium enterprises. They pay money immediately, and they accept to pay prices higher by 5-10 percent than the market prices. Therefore, Vietnamese companies decided to sell all the fibers they had,” said Khuong, Director of a fabric trade company, which has an office located at the Soai Kinh Lam wholesale market.

The big demand from Chinese businessmen pushes the prices up continuously. The fiber price early this year was three times higher than the price of one year ago. Some sources say that the market sometimes lacked fibers so seriously, that many garment companies had to keep production at a moderate level.

According to Tran Dang Tuong, Chair of the Vietnam Fiber Association, the fiber exports to China have been increasing considerably recently, because Chinese businessmen do not set overly high requirements on quality, while they accept to pay high prices.

Tuong also said that the sellers to Chinese businessmen were mostly small enterprises. Meanwhile, big enterprises only sold 10-20 percent of their output to Chinese businessmen, because the enterprises make products with high standards and high prices. Besides, the big enterprises already have stable buyers who come from Turkey, South Korea, the Philippines and Indonesia.

According to the association, the fiber prices in Vietnam are lower than that in China, because cotton imports to Vietnam do not bear tax, while cotton makes up 70 percent of the fiber production costs. In the transitional period, the capacity of Chinese factories is not big enough to satisfy the demand of the textile industry of the country.

Also, according to the association, since the second half of 2010, Vietnamese fiber factories have always been selling out all of the churned out products, with no inventories.

Making profit or taking loss?

As such, the profits earned from selling fibers to China were not big enough to offset losses, and Vietnamese businesses have to “pay a heavy price” for the lack of information and the lack of vision.

Pham Xuan Hong, Deputy Chair of the Vietnam Textile and Apparel Association (Vinatas), said he knows many enterprises which took losses when collecting goods to sell to China, and then buying materials at higher prices. However, no enterprise has admitted the unprofitable affairs.

After a period of pushing the prices up, Chinese businessmen have changed their trading strategy. Since mid April 2011, the fiber price in Vietnam has been decreasing by 10-15 percent, because Chinese businessmen have stopped collecting fibers. TC fiber, for example, has seen the price drop from 124,000 dong per kilo to 114,000 dong, while further price decreases are expected.

Nguyen Duc Khiem, General Director of Viet Thang Textile and Garment Company said that some fiber producers now have unsold products, because enterprises do not hurry to buy fibers at this moment. They believe the prices would go down further.

“Chinese businessmen are better at the market forecast,” Khiem said.

Source: SGTT