The run-up to the Lunar New Year, normally the peak season for sales in Vietnam, has failed to revive demand, and many manufacturers continue to sit on massive stockpiles
Plagued by weak demand and increasing imports, the steel industry reported large stockpiles throughout 2012, sometimes of as much as 40 percent of output
Consumption would pick up in the remaining months of the year, Deputy Minister of Industry and Trade Tran Tuan Anh had said last October, trying to allay concerns about the massive inventories businesses had piled up.
When he was speaking to the National Assembly’s Standing Committee, he had in mind Tet, which falls in early February this year. The Lunar New Year, the biggest holiday for Vietnamese, is a time when people normally spend a lot of money on clothes, food, building materials to renovate their houses, and gifts for relatives and friends.
But his expectations, and those of many economists, have been dashed.
Ly Thuong Kiet and To Hien Thanh streets in Ho Chi Minh City’s District 10 have shop after shop selling construction materials. This usually bustling market has been somnolent since the beginning of last year, not even coming to life for Tet.
Trinh Hoai Hung, the owner of a shop on To Hien Thanh Street, lamented that last year’s sales were only half of that in 2009 and 2010.
Though it is now the high season, at most shops, “both employers and employees are just playing games” since there are almost no customers, he said.
At a nearby plywood store, Vietweek indeed saw four employees playing cards. Thang, one of them, said they had so much free time that they did not know how to kill time.
Sales have been poor in recent years, he said, but things have hit rock bottom since the beginning of last year.
Giang, who owns a building-materials store in Binh Tan District, said: “We could not sell much in 2012. We were depending on the year-end period, but in the current situation sales will surely not improve.”
With demand plummeting, inventories have been piling up at manufacturers’.
Nguyen Trung Kien, sales chief at HCMC-based brick producer Bao Loc Company, told Vietweek that during the high season before Tet his company usually sold eight to ten million bricks a month, but that has come down to “just” five million now.
Seven million bricks are in stock and would be sold at a discount since their quality deteriorates over time, he said.
The company’s sales plunged to 60 million bricks last year, compared to 100 million in 2008 and 70 million in 2011.
According to the General Statistics Office, as of December 1 the inventory index of clay building materials was up 3.6 percent from a year earlier.
Deputy Minister of Construction Nguyen Tran Nam said “the most troubled” segment in the building-materials industry is glass, with inventories at some 80 million square meters despite annual output halving last year to 85 million square meters.
Other segments like cement and ceramic tiles are also plagued by the same difficulties, he said.
Cement stockpiles are at four million tons - four times the normal figure, according to the Vietnam Cement Association - while the output of ceramic tiles halved last year.
Many manufacturers have closed down with four months’ output still in stock, Nam said.
He blamed the high level of inventories on the decrease in the number of government projects, explaining that public spending as a ratio of gross domestic product fell to 30-32 percent in 2012 from 42 percent the year before.
He also pointed to people’s cutting of expenses on house building and repairs due to the economic situation.
Humble rises for garment, food
Speaking to Vietweek, Tran Thanh Nhan, deputy general director of Vinatexmart, a chain run by the Vietnam National Garment and Textile Group, said sales are expected to no more than double in the last lunar month, unlike usual when they increase by three to 3.5 times.
Viet Thy Fashion Company reported a fall in sales of 20-30 percent during the year-end season, its director, Dang Quynh Doan, said.
Nhan said most businesses in the sector are offering sales incentives to stimulate demand and not take risks developing new products.
Figures from the General Statistics Office showed that as of December 1 garment stocks were up by 41.5 percent year-on-year.
Food companies are cautious about production volumes for Tet since they do not expect any increase in sales.
Van Duc Muoi, general director of major food producer Vissan, hoped demand would be at least at last year’s levels.
Le Thi Thanh Lam, deputy general director of Saigon Food Company, was also worried about demand.
Nguyen Nguyen Phuong, chief of the HCMC Department of Industry and Trade’s commercial management division, counseled businesses to “closely monitor” the situation and have “moderate” stocks to keep inventories reasonable.
It is very likely that people would reduce spending, he said.
Vietweek observed that despite Tet being just a month away, only major supermarkets are doing good business. But even they, unlike in previous years, are only crowded at certain times like weekend mornings and evenings. At smaller supermarkets, there are virtually no customers.
A spokesperson for supermarket chain Co.opMart told Vietweek that though sales in December had been up 25 percent month-on-month they were still lower than a year earlier.
Wholesale markets have been no exception. A representative of Binh Dien Market, a farm produce wholesale market in HCMC, said few retailers had come in recent weeks despite a price-stabilization program for many items.
Government support needed
Nguyen Dinh Cung, deputy chief of the Central Institute for Economic Management, said businesses need to rely on themselves to tackle the high inventories and use the “effective” measure of cutting prices.
But Nguyen Tien Nghi, vice chairman of the Vietnam Steel Association, did not agree, saying that businesses cannot clear their inventories without the government’s support through policies to stimulate demand and crack down on smuggling.
The steel sector, for instance, has been unable to reduce its stockpile considerably, given the weak demand and increasing imports despite taking a variety of measures like expanding exports and cutting costs, he said.
The stockpile was high throughout 2012, sometimes up to 40 percent of output, VietNamNet said quoting the association’s figures.
Deputy Minister of Industry and Trade Le Duong Quang told Vietweek that demand remains weak compared to the same period in past years. His ministry would continue with promotional programs like discounts and selling in rural areas.
The ministry would also launch campaigns like encouraging Vietnamese to use domestic products, he added.
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