Be proactive and flexible with production materials

Raw materials for production to meet export requirements are always an issue of concern for businesses.

Increase imports due to supply does not meet demand

In the first two months of 2024, according to data from the General Department of Customs, Vietnam's goods trade balance continues to have a surplus of US$5 billion. In particular, the export value of many key products such as textiles, footwear, electronics, machinery and equipment... increased by double digits. Because production and exports both increased, import parameters also had a corresponding increase, especially the sharp increase in imports of raw materials.

For example, in the two months of 2024, the value of imported raw materials to serve the textile, garment, and footwear industries has reached nearly US$3.74 billion, an increase of 18.2 percent, equivalent to an increase of US$576 million compared to the same period last year. The amount of imported iron and steel of all kinds reached 2.65 million tons with a value of US$1.88 billion, an increase of 85.4 percent in volume and an increase of 57 percent in value compared to the same period in 2023.

Currently, in many fields, the majority of raw materials still depend on imported sources, mainly from China due to its close geographical location and low price, so domestic raw materials only account for a small proportion. A representative of the Ho Chi Minh City Association of Garments, Textiles, Embroidery and Knitting explained that the rate of autonomy in raw materials and accessories is low because it depends on customer requirements for materials as well as reasonable prices, so many businesses are forced to import because domestic sources are not sufficient and do not meet the requirements.

In the recent reflection of nine steel enterprises including: Hoa Sen Group Joint Stock Company, TVP Steel Joint Stock Company, Dong A Steel Joint Stock Company, Nam Kim Steel Joint Stock Company, Phuong Nam Steel Sheet Company, Pomina Corrugated Steel Joint Stock Company, Vina One Steel Production Joint Stock Company, Viet Nhat Steel Production and Trading Joint Stock Company and Nam Hung Metal Joint Stock Company, hot rolled coil (HRC) is the main raw material for produces corrugated steel products used in many applications in the construction and industrial sectors, so Vietnam's HRC consumption demand is in the range of 10 to more than 13 million tons per year. However, the total design capacity of production HRC export in Vietnam is only 8.2 million tons per year, not to mention a portion for export. Therefore, the output that Vietnamese HRC manufacturers sell in the domestic market can currently only meet about 30 percent of the HRC needs of domestic businesses.

Regarding this issue, Mr. Vu Van Thanh, Deputy General Director of Hoa Sen Group, said that businesses always prioritize domestic HRC products because export orders to the US and Mexico must prove origin to avoid anti-evasion tax and comply with the provisions of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP); or exporting to Qatar, Oman, and Taiwan markets also requires high requirements for the domestic origin of raw materials. However, because supply does not meet demand, steel businesses still have to import large amounts of HRC steel from China.

Be more proactive for a healthy business environment

Aware of the difficulties of manufacturing enterprises, the raw materials industry is still active with many investment and development expansion activities.

Recently, a factory specializing in producing raw materials for the garment industry was inaugurated in Thanh Hoa with an estimated output of about US$100 million per year. According to Mr. Vu Duc Giang, Chairman of the Vietnam Textile and Apparel Association (VITAS), developing domestic factories is an inevitable requirement for the third largest garment export market like Vietnam to benefit from the tariff incentives, while helping to reduce costs and increase trade surplus for the economy.

With raw materials for the steel industry, a representative of Hoa Phat Dung Quat Steel Joint Stock Company said that Hoa Phat Dung Quat 2 Iron and Steel Production Complex project is expected to be completed in the first quarter of 2025, helping Hoa Phat's crude steel production capacity reach over 14.5 million tons per year, including 8.6 million tons of HRC.

Currently, Dung Quat 1 factory has been put into synchronous operation since 2021, with a capacity of 6 million tons per year, including three million tons of HRC. According to information from Hoa Phat, as of March 20, 2024, the Group has officially reached the milestone of 9 million tons of HRC.

Recently, Hoa Phat Group and Hung Nghiep Formosa Ha Tinh Iron and Steel Co., Ltd. sent documents to the Trade Defense Department requesting to initiate an anti-dumping investigation on HRC imported from China due to concerns about unfair competition.

The 9 steel enterprises mentioned above opposed because applying trade defense measures on imported HRC would make the supply increasingly scarce and create a monopoly for two domestic manufacturing enterprises, thereby affecting many other economic sectors.

The above problem shows that the business environment always needs balance and harmony between subjects. Therefore, authorities need to have reasonable policies to create a suitable supply-demand chain, at the same time, policy responses also need to be quick and flexible to help increase investment in supporting industries, especially how to attract domestic and foreign investors to boldly invest in building factories with large capacity to supply raw materials.