Rising stockpiles threaten growth prospects

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A man works at a steel factory in Que Vo District, outside Hanoi. Sales of steel products have fallen sharply over the past few months.

A growing stockpile of commodities and materials is threatening the production and business of many enterprises, and could weaken the country's economic growth, experts and industry insiders say.

They blame the situation on high inflation, tightened credit policies and reduction in public investment that have reduced purchasing power.

Pham Chi Cuong, chairman of the Vietnam Steel Association, sales of steel products have seen a month-on-month reduction of 11.4 percent in May and 24.6 percent in June because many construction projects have been delayed.

As a result, the stock of steel products in June rose 6.9 percent over May to 430,000 tons, while that of steel billet stood at 590,000 tons.

"This is the biggest ever stockpile for the industry," Cuong said.

For every ton of steel in stock, producers still have to pay loan interest of VND300,000-400,000 (US$14.5-19.2) each month. Most have decided to scale back production to 50-60 percent of their capacity only, he said.

The cement sector is also in the same situation. Although production was cut by 500,000 tons in July, there was a stockpile of some 1.4 million tons.

Le Van Chung, chairman of the management board of the Vietnam Cement Corporation, said the high stockpile has created capital problems for producers. With low sales and interest rates of over 20 percent, firms are finding it hard to borrow from banks.

Many firms have lowered their retail prices, but the situation has still not improved, he said.

Producers of other construction materials have also seen their stockpiles soar.

An executive of a company in Hanoi, who wished to be unnamed, said his firm now had a stockpile of construction materials worth dozens of billions of dong.

Some firms have retained their production at a moderate level, cut prices, or helped cover transportation fees for their customers to boost sales, but these are short-term measures, he said.

The best way is to spur consumption and have construction projects revived and accelerated, he said.

Producers of plastic, electronics and woodwork products have also been hit by low demand.

Dao Duy Kha, deputy general director of Vietnam Plastic Corporation, said the plastics industry has normally seen a growth of 10-15 percent each year for several years now. But, it has not happened since early this year.

"Although we have actively cut the monthly import of materials from 1,000 tons to 700-800 tons, our stockpile in the first seven months of this year still rose by 20 percent over the same period last year," he said.

Meanwhile, the Vietnam Animal Feed Association has said its sales were down 30-40 percent because of increased prices and a weakened husbandry sector. Many animal feed traders have seen inventory levels rise to 10-20 percent of their total trading volume. Some firms have cut imports to cope with the situation.

According to the General Statistics Office, the stockpile index of the processing and manufacturing sector saw a year-on-year increase of 15.9 percent in the first half of this year, while that of the woodwork sector surged 71.7 percent, footwear 59.4 percent, and animal feed 37.6 percent.

Do Thuc, head of the office, said the high stockpiles were devaluing the country's industrial production.

If the situation continues longer, many firms will have to cut production or even shut down, he said.

This was echoed by other experts, who believe inflation and growing stockpiles do not augur well for the economy.

Inflation accelerated for the 11th straight month in July as consumer prices rose 22.16 percent from a year earlier, according to the General Statistics Office.

Twenty percent of plastic producers have temporarily shut down their business since early this year, Kha of Vietnam Plastic Corporation said.

Tran Thi Hong, director of electronic appliances trader Phuong Hong, said her firm's turnover at present was half the figure late last year.

"The situation has never been as bad as now. We have no other way than to cut our staff by half and reduce business operations."

Hong said her firm has narrowed operations and now focuses on selling products in big cities only, instead of both urban and rural markets as before.

Many fashion and electronics product shops have also shut down because of low sales.

Nguyen Thi Cuong, owner of a clothes shop in Hanoi, said she had to close her business because earnings were not enough to pay rent and salaries.

"We have hundreds of garment items in stock. Despite accepting losses and offering up to 70 percent discounts, we have not been able to sell them at all."

Vietnam's growth is expected to slow to 6.1 percent this year from 6.8 percent in 2010, the Asian Development Bank said last month. The economy expanded 5.7 percent in the second quarter of 2011, compared to 5.4 percent in the first quarter.

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