Enterprises face rising raw material prices

​According to the Department of Industry and Trade, in the first 5 months of 2021, Dong Nai enterprises spent nearly 7.97 billion USD to import raw materials and accessories for industrial production, increased nearly 41% compared to the same period last year. Import turnover highly increased, partly due to the continuously escalating prices of input materials.

Producing batteries and accumulators for export at Vietnam Center Power Tech Co., Ltd in Nhon Trach 2 Industrial Park

*Businesses face difficulties

From the beginning of the year until now, the price of input materials for manufacturing plants has increased very high. In which, there are businesses that are lucky to negotiate with the purchasing partner to increase the corresponding product price, but there are also businesses that only adjust slightly, so profits are narrowed or only breakeven. The reason for the high price of input materials is due to natural disasters, epidemics and many enterprises in many countries restore production and need a large input supply.

Mr Le Bach Long, Director of Nam Long Co., Ltd (Long Thanh district) assessed: “The price of rubber, chemicals, plastic beads, paper... increased by 30-51% compared to the same period in 2020 that has pushed the cost of products that must use the above raw materials increased greatly. At the same time, wages for workers also increased by 10%/year, while many purchasing partners only accept to increase product prices by 7-10%. Therefore, enterprises forced to recalculate their production and business plans accordingly to survive and develop.

Similarly, Mr Nguyen Hoai Son, External Affairs Director of Rohm and Hass Vietnam Co., Ltd (belongs to Dow Corporation of the US) in Nhon Trach 3 Industrial Park phase 2 said: “The company has to import some input materials from the Middle East region, Thailand to produce chemicals for sale to domestic enterprises and for export. Since the beginning of the year, the source of raw materials has increased by 20-40% and the supply is limited, leading to production being affected. However, the company is fortunate to be able to negotiate with customers to increase product prices accordingly, still ensure production and business activities."

*Industry tries to escape the waves

Currently, the main commodity groups of Vietnam as well as Dong Nai are textiles and garments; Footwear; wooden product; computers, electronic components; Processing; manufacture more than half of raw materials must be imported, so production will depends greatly on the price of raw materials. Enterprises are also worried when negotiating to sign contracts with customers because they do not know how the price of raw materials will fluctuate. Enterprises that have capital can buy enough reserves for 4-6 months of production will be less risky.

Mrs Nguyen Thi Kim Tuyen, Director of Ngoc Thanh Phuoc One Member Packaging Company Limited (Bien Hoa City) shared: “In order to ensure production and business, the company usually buys raw materials to reserve for 5-6 months, so the company can be assured to sign contracts with domestic and foreign customers with the corresponding product number. If there is no capital to buy raw materials, enterprises will face many risks when prices fluctuate high”. For small and micro enterprises, it is difficult to have enough capital to store raw materials for a long time. Most businesses buy raw materials when they receive new orders buy raw materials and only reserve 1-2 months.

According to the Vietnam Textile and Apparel Association, in the first four months of this year, enterprises in the textile and garment industry are under intense pressure on input materials because the prices of cotton, yarn, fabric and other materials have increased. It is forecasted that in 2021, the world will have a shortage of 1 million tons of cotton due to high demand and cotton is the main raw material for the textile industry, so it is difficult to reduce raw materials for this industry in the near future. Thus, the domestic textile and garment industry is likely to face difficulties until the end of the year.

Currently, many enterprises in the wood, processing, and footwear industries in Dong Nai do not dare to accept long-term orders for the whole year because of concerns that fluctuations in input costs may continue to increase.
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