VietNamNet Bridge - Vietnam’s lumber and wood product export markets are fighting for survival as their businesses sink into oblivion. High interest rates and rising production, power and labor costs have put some enterprises on the brink of insolvency.

However, according to Bui Thi Thanh An, chief representative of the Vietnam Trade Promotion Agency under the Ministry of Industry and Trade who just led a mission of wood enterprises to Las Vegas, the purchasing power of the U.S. market has showed some optimistic signs this year.

After two years of economic recession, the inventories of many wholesale distributors of the market are improving with ten participating enterprises picking up orders and contracts to supply wooden furniture from now until the end of the year.

“Although U.S. market prices are not as high as European or Japanese markets, its number of orders is stable and often in bulk which can make up for the loss in sale prices. Compared to the two previous fairs in 2009 and 2010, it was much more optimistic,” An said.

However, An said local enterprises were incurring high input costs and that was affecting their selling price which has cut into their competitiveness against foreign competitors.

Nguyen Ton Quyen, secretary general of the Vietnam Timber and Forest Product Association (Vietfores), said that a high interest rate, the increasing prices of power, water and labor along with the economic slump in many import markets, undermined the possibility of the enterprises earning ample profits.

But Quyen hoped that the purchasing power of such major import markets as Europe and the U.S. maintained steady, which had growth of 11% and 13% in the export volume of lumber and wood products in European and the U.S. markets respectively, and was predicted to increase from now to end of the year given the high season.

Japan has speeded up the import of plywood and planks to meet its demand for reconstruction after March’s natural disasters. Japan has also loosened requirements on quality criteria compared to before, which opened the way for a surge in product exports into the country.

Northern enterprises received an order of up to 200,000 items of plywood and planks to export from now to the year’s end into the Japanese market, Quyen added.

However, in addition to many positive factors, local enterprises were still concerned. An said the competitiveness of wood manufacturers was affected due to the high interest rate which clearly showed on the price of units of those participating in the fair compared to other countries.

According to many enterprises, the interest rate remaining at a high level for a long time has resulted in an upsurge in other production costs. Consequently, even though enterprises received an abundant number of orders from earlier this year to now, the likelihood of decent profits is unlikely.

“With such high input costs, enterprises just hope to break even and not incur losses this year,” said Ngo Thi Hong Thu, deputy director general of Truong Thanh Furniture Corporation.

Truong Thanh Furniture Corporation was carrying out many methods to cut down costs of management, common production as well as improving laborers’ productivity to make up for the interest rate and material costs rising over 30% compared to last year.

Similarly, many enterprises accumulated materials as predicted prices of forest wood, rubber, cajuput, and acacia were likely to keep climbing.

According to Nguyen Van Vy, former chief of HCMC Handicraft and Wood Industry Association, simply-processed products making use of low-cost labor of Vietnam were not effective at present when input prices upturned while selling prices could hardly increase.

Many enterprises in the wood industry have tended to shift from producing medium-class products to high-class ones which required investment in technology, production devices, labor and production management skills.

“As soon as an appropriate time comes, especially when the interest rate goes down and the enterprises can borrow money, they will change their production direction,” Vy added.

Source: VIR