Inventory pileup continues

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Reduced prices, deferred payment offers fail to make a dent

Steel stockpiles are now estimated at 370,000 tons, according to the Vietnam Steel Association

As a stagnant economy continues to squeeze, companies are groaning under the weight of rising inventories.

Many firms have launched promotion programs and schemes to spur consumption, but customers are not budging.

Nguyen Tien Nghi, vice chairman of the Vietnam Steel Association, said steel stockpiles are estimated at 370,000 tons, compared to the "acceptable" level of 250,000 tons.

Many firms have reduced prices by VND100,000-150,000 (US$4.8-7.1) per ton, others have offered to pay customers' transportation fees and have allowed deferred payments, but sales remain slow, he said.

According to the Ministry of Industry and Trade, some 2.2 million tons of steel was sold in the Vietnamese market in the first half of this year, down 7 percent from the same period last year.

"Like many other construction materials, the steel sector has been seriously affected by the frozen property market. Slow sales have forced many firms to narrow production. Many steel factories are now running at 50-60 percent of their capacity," Nghi said.

Meanwhile, cement sales plunged 10 percent to 23.6 million tons in the first half of this year, according to the Vietnam Cement Association, raising stockpiles of the product to over three million tons.

Nguyen Trong Kien, deputy general director of brick producer Thach Ban, said his firm's stock now equaled two months of average output as first-half sales fell 30 percent over the same period last year.

"We have to consider stopping the operation of some production lines if the situation does not improve," he said.

His firm has reduced product prices by 8 percent and paid higher commissions to agencies, but sales have not picked up, he said.

"There are members (of Thach Ban group) suffering estimated losses of some VND10 billion ($0.48 million) this year," Kien said. "But we have no other way than to wait for the property market to recover."

Apart from construction materials, consumer goods like garments, electronic products and cars have also seen plummeting sales.

According to the Vietnam Automobile Manufacturers' Association, local carmakers saw sales drop in the first six months of this year by 41 percent over the same period last year.

To cope with the situation, most of the association's 18 members have cut production and temporarily laid off workers.

Low sales mean big inventories and stagnant production. One company representative said that if the situation does not improve soon, carmakers will find it hard to maintain production and may shift to importing vehicles, threatening Vietnam's target of developing the automobile sector into a key industry.

Other sectors present similar dismal pictures.

At major shopping malls in Hanoi, virtually every shop has put up notices offering discounts of up to 50 percent, but they still attract few customers.

Van Duc Muon, general director of food producer Vissan, said low purchasing power had forced firms to reduce profit margins and even suffer losses. His firm has reduced prices of some fresh food items by 5-10 percent since early this year, but sales have not improved by much.

Vu Vinh Phu, chairman of the Hanoi Supermarkets Association, said consumers have cut back on spending sharply. "So it's easy to see why inventory levels at local firms have reached 30 percent," he said.

Revenues of the association's members were down 10-12 percent in the first half of this year despite promotions including discounts of 20-50 percent.

An economist said the inventory situation would not get much better in the remaining months of this year. He said the signs of recovery cannot be seen clearly despite lower inflation and interest rates.

Vietnam's inventory index in the first six months rose 26 percent over the same period last year, according to General Statistical Office.

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