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Inventories swell as demand falls
Vietnamese companies are seeing their inventories grow bigger by the day as the global recession shrinks their order books.
Wood exporters, for a start, are sitting on 600,000 cubic meters of finished products, according to figures from the Vietnam Timber and Forest Product Association (Vietfores).
All they have are orders from their top two markets, the US and the European Union, for April delivery.
With exports earning a mere US$2.8 billion in 2008, Vietnam’s wood industry missed its annual target for the first time in eight years. The target was $3.2 billion.
Vietfores is tipping revenue to grow by 8-10 percent this year, the slowest in a decade, the Saigon Economic Times quotes vice chairman Nguyen Ton Quyen as saying.
Steel makers are feeling the pinch too.
The global recession has hurt demand for steel from manufacturers and builders, prompting mills in China, the biggest producer, and elsewhere to cut their prices.
Steel demand has also fallen in Vietnam as higher interest rates and a slowing economy hurt the construction industry.
Vietnamese steel companies, which can produce around 4.5 million tons a year, have 300,000 tons of ingots in stock, Vietnam Steel Association (VSA) Chairman Pham Chi Cuong said last week.
By his estimation, domestic steel consumption fell more than 20 percent in the first quarter.
Exports fared even worse in the period, declining by nearly 30 percent to 700,000 tons, VSA Vice Chairman Nguyen Tien Nghi told Thanh Nien Daily.
With few orders coming in, steel production in the first quarter was down 76 percent year-on-year to around 760,000 tons, he said.
Most domestic companies react slowly to signs of declining sales, said Duong Hai, a lecturer from the Pace Institution for Directors addressing a conference in Ho Chi Minh City.
Some companies are behaving as though demand will pick up again soon by continuing with production even as their inventories get larger, Hai said.
Another speaker at the conference, Nguyen Canh Tien from Australia’s Queensland University, said many companies were making a serious mistake by taking out short-term loans to boost production.
She said it was very risky as the borrowers had to use up all their profits to repay their debts.
Experts in cash-flow management warned that businesses should not borrow short-term or overdraw their accounts to buy fixed assets.
Instead, they should take out longterm bank loans or raise capital in the bond market.
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