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Wave of input material price increases puts businesses in a whirl
Manufacturers are complaining that the input material price increases have become “unbearable” and will force them to raise sale prices, though they well know that the move will make their products less competitive.
TNP, Director of a textile and dye company, said that his factory needs about 10,000-12,000 liters of FO oil a month. Now since the oil price has increased, the company will have to pay 30 million dong more for fuel, which will make the production costs higher. The director said he is considering raising the sale prices of his products starting from March 1.
Pham Chi Cuong, Chair of the Vietnam Steel Association VSA, has estimated that steel makers will have to pay 337.6 billion dong more for FO oil in order to churn out four million tons of steel in 2011. Cuong said that it takes 40 liters of FO to make one ton of finished steel products, and the expenses on oil account for 3.5 percent of the production costs. Therefore, it seems that an increase in the price of steel is unavoidable.
Meanwhile, transport service companies have raised the transport fee by 15-20 percent right after the announcement on petroleum price increases was released on February 24, 2011.
The information about the petroleum price increases has made fishermen sorrowful. Minh Hoang, the owner of a fishing boat in Ba Ria-Vung Tau, said he fears fishing trips will bring losses, because he will have to pay an additional sum of 106.5 million dong for every trip due to the oil price increase. He has also predicted that the labor cost, ice prices and other expense items will also be increasing as the result of the petroleum price increases.
It is obvious that the fuel and input material price increases will make the production costs higher and businesses will only make profit if they raise the sale prices. However, businesses well understand that they will “kill themselves” if they raise prices, because the move will make their products less competitive. Therefore, businesses now have to cudgel their brains to think about what they should do to avoid increasing sale prices.
“However, I am worried about if sale price increases will be accepted because Chinese made fabric is 13-15 percent cheaper than domestically made products,” said TNP from the textile and dye company.
Ho Le Phong, Technical Director of Chi Thanh Plastics Company, said that material suppliers have informed of a five percent price increase. However, he knows that it will be not easy to raise sale prices because the price increase may not be accepted by consumers. “We are looking for technical solutions which allows us to reduce consumed energy in order to deal with material price increases,” he said
Meanwhile, Vu Van Hien, Deputy General Director of Sadakim, a mechanical engineering company, said that if the electricity price increases by 15.28 percent, the company will have to raise sale prices by two percent to cover expenses. However, Hien admitted that it will be impossible for manufacturers to raise the sale prices sharply in accordance with the electricity and input material price increases. Sadakim now has to apply necessary measures to save electricity: workers have been told to turn off light and fans if they are not necessary, and to use air-conditioning reasonably.
A representative of Duy Tan Plastics Company said that the company is listening to the news to decide the price increases. “The input material prices have seen double-digit increases, while our measures to reduce the production costs just help a little. Therefore, we will have to raise prices,” he said.
However, he admitted that raising sale prices would be the secondary solution. In long term, the company will have to make new products with high added value. He has revealed by the end of the second quarter of 2011, the company will market some new products.
Tuyet Ngan
vietnamnet
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