Weakened euro gives exporters the jitters

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The weakening of the euro against the dong and most other hard currencies may make Vietnamese exports to the eurozone less competitive, Vietnamese producers fear.

The depreciation of Europe's single currency, which means European consumers have to spend more on buying imported products, may slash purchasing power in the market and thus affect the negotiation of contracts, they said.

The euro has depreciated some 15 percent against the US dollar in the first six months of this year due to the European debt crisis. In Vietnam, the currency, which slightly rose early this week to around VND23,000, has depreciated by about VND400 from May and VND4,000 compared with early this year.

As a result, Vietnamese commodities bound for Europe have become more expensive, despite their unchanged US dollar prices. Some European importers have asked Vietnamese traders to reduce their prices.

"Negotiations of export contracts [to the eurozone market] have become more difficult, and some have been delayed," the director of a woodwork firm in Bac Ninh province said. Up to 70 percent of his firm's products are shipped to the European Union (EU).

Worried that the euro depreciation may continue, some European importers do not want to sign big contracts with long delivery terms, he said.

Truong Dinh Hoe, general secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), said depreciation of the euro has partly hurt exports to the European market, which accounts for some 26 percent of Vietnam's seafood shipment value.

While the average growth of Vietnamese seafood exports in the first four months of this year was 20 percent, that of exports to the eurozone market was 17 percent, Hoe said.

Tran Thien Linh, director of seafood producer Thuan Phuoc in Da Nang City, said export prices to the EU have reduced by some 10 percent since the beginning of this year.

Exporters who want to boost sales to the market would thus have to accept lower benefits, or even losses, Linh said.

Nguyen Van Ky, general director of seafood producer Agifish, said the pressure of lower prices in the EU has made the price of tra fish on the domestic market fall by some 6 percent to under VND16,000 ($0.8) per kilogram.

The weakened euro has also made it difficult for garments and textile producers to penetrate big markets. Le Quoc An, chairman of the Vietnam Textile and Apparel Association (Vitas), said garment exporters may be negatively affected by the depreciation in terms of competitiveness, as most garment export contracts now are paid in US dollars.

Diep Thanh Kiet, vice chairman of the Ho Chi Minh City Association of Garments, Textile, Embroidery and Knitting, estimated that Vietnamese companies would incur a loss of between €0.5 and €0.75 for every shirt exported to the EU at €5 each.

According to economists, the euro continues to drop against the dollar as there are no signs the debt situation in Europe will ease. The euro is predicted to drop further towards the end of the year to $1.06 per euro.

As a result, European importers would want to have a new price agreement that may leave Vietnamese exporters at a disadvantage, according to a recent report by the Sacombank Securities Company.

The report called for "suitable solutions" to support exports to the eurozone market.

Not all bad

Despite difficulties, the situation is not too serious, some experts say.

Pham Hong Hai, a senior executive of Hong Kong and Shanghai Banking Group HSBC, said the depreciation of the euro has benefited Vietnamese individuals who need euros to pay for tourism, healthcare and overseas studies in Europe.

An of Vitas said the weakening euro may benefit importers making payments in euro. Now, Vietnam has to import over 80 percent of its materials for textile and garment production.

Meanwhile, Pham Quang Dieu, director of Agromonitor, a research firm, said that to deal with difficulties caused by euro depreciation, firms should focus more on non-traditional markets, and emerging ones such as Bulgaria, Romania, the Czech Republic, Middle East and China.

Hoe of VASEP said the recent oil spill in the US will make seafood prices go up, so firms should take full advantage of the opportunities to boost exports to this market.

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