Vietnam confronts rubber dilemma

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Vietnam is a big name in the rubber industry.

It is the world's fourth largest exporter despite being a late entrant into the international market.

But Vietnamese firms producing tires and needing latex for other production purposes are facing a shortage of the material and having to import it at higher prices.

The increased domestic demand has not disturbed the export focus of local rubber firms because they have tax incentives to do so, industry insiders say.

Dinh Ngoc Dam, director of the Da Nang Rubber Company, a tire producer, said his firm needs 12,000-15,000 tons of latex each year, but it could only buy one-third of this quantity from the Vietnam Rubber Group, the country's biggest producer. It has had to buy some of their supply from local small farms that often offer products of lower quality, and then import the rest at higher prices.

His firm plans to expand production next year, increasing its latex needs to 20,000 tons each year.

"This will make it more difficult for us to find a stable supply source for the material in the domestic market. Rubber producers are focused exclusively on exports to earn higher profits, but local consumers get ignored," he said.

Le Van Tri, deputy general director of Casumina, said rubber traders are ready to cut their sales in the domestic market to boost exports if export prices are higher. Thus, many companies that are unable to purchase enough of the material from local producers have to import it from Thailand with an import tax of 5 percent.

To have enough latex for production, some firms have to purchase the material from farmers and get it processed before using it, increasing their production time and cost.

Vietnamese firms imported 172,000 tons of rubber worth US$426.9 million, mainly from South Korea and Thailand, in the first half of this year, a year-on-year increase of 45 percent in terms of value, according to the Vietnam General Department of Customs.

Meanwhile, Vietnam shipped 369,000 tons of natural rubber worth $1.6 billion in the first seven months of this year, according the General Statistics Office.

Policy shortcomings

Le Quang Thung, chairman of the Vietnam Rubber Association, said one of the reasons Vietnamese exporters preferred to ship their produce abroad rather than sell them to local consumers is that the latter are not as reliable.

He said foreign buyers stuck by the signed contracts, while local buyers were prone to cancel contracts if they found the prices unfavorable.

Thung said unreasonable taxation policies were also a factor. If it is sold in the domestic market, rubber is subject to a value added tax of 5 percent, while shipments abroad are exempted from export tax.

In the context of increasing rubber demand in the world, many foreign traders have visited Vietnamese localities and strengthened purchases of the material from local producers. Large buyers of Vietnamese rubber include China and Malaysia.

The world's rubber demand is forecast to rise by 4.6 percent to 11.2 million metric tons in 2011, boosted by strong vehicle sales with consumption continuing to outpace supply in coming years, according to the International Rubber Study Group.

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