August 2008

VIETNAM PLASTIC INDUSTRY

Executive Summary
Currently the plastic industry relies heavily on imports and recent increases of raw materials have strained the industry, forcing some manufacturers to close. A number of other factors common to other industries limit its development: under-developed infrastructure, lack of skilled labor, branding, and production scale. Of all these factors, the plastics sector most importantly needs to further develop Vietnams petrochemical supply in order to sustain its growth and competitiveness.

With an annual growth rate of 15-20% since 2001, plastics rate as one of Vietnams high growth industries. Plastic packaging dominates domestic output but the government is urging the industry to shift towards more high tech and value-added products, including items such as CDs and DVDs.

Fig. 1 Plastic Industry Structure

Processed via: - Blow molding - Extrusion - Injection molding

Source: Tractus-Asia

Structure of the Plastics Industry

The plastic industry in Vietnam produces both intermediate and final plastic goods (see Fig. 1). The sector however mainly serves as a supporting industry, providing plastic parts or packaging, for other sectors.

people and with a production capacity of 1,500 tons/month. Most firms operate in the South (83%), the industrys geographic center. The majority of those firms are concentrated in Ho Chi Minh city and the surrounding provinces of Ba RiaVung Tau, Binh Duong, Dong Nai and Long An (see Fig. 2). These provinces are appealing Fig. 2 Plastic Industry Concentration in the South

Local Production
Plastics are a synthetic polymer (natural polymers include amber and rubber). At the molecular level, polymers are comprised of long chains of molecules. Different types of plastic vary by polymer chain length and the addition of additives. The plastic industry in Vietnam mainly processes plastic granules and pellets. According to the Ho Chi Minh Plastics Association (VSPA), there are approximately 2,800 plastic manufacturers. A typical firm is small to medium in size, employing between 10-50 people and producing at a small scale. Seventyone percent of domestic processors fit such a profile. Only ten firmsless than 1% operate on a macro scale, employing 1,000

Binh Duong Dong Nai

Long An

Ba-Ria Vung Tau Ho Chi Minh City

Source: Tractus-Asia 2

not only for their proximity to the large consumer market in Ho Chi Minh city and major ports, but some of the industrial zones have developed one-stop investment services to simplify administrative procedures (e.g., Duc Hoa I and II in Long An). About 13% of firms are located in the north and 3% in the central region. Fig. 3 Vietnam Plastic Output
4000

39%

Volume (thous. tons)

3500 3000 2500 2000 1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

22% 13% 13% 7% 5% 8% 16% 18%

19%

generate most of the output, state-owned and foreign-invested firms tend to have more capital investment. State-owned firms in particular show the greatest difference between the amount capital-invested (20%) and output (6%), which can potentially be attributed to inefficient use of resources or fewer firms with higher technology but whose production levels are small in comparison to total industry output. Since 2007 when this information was published, the distribution has likely 45% shifted with the equitization of Vinaplast, a 40% 35% former state-owned enterprise and the in30% dustrys largest corporation. 25%
20% 15% 10% 5% 0% 80%

Fig. 4 Capital Invested & Output

72% 45% 20% 6% Privately-held State-owned Firm Type Foreign-invested 22% Output Capital

Percentage

60% 40% 20% 0%

Source: Vietnam Plastics Association

35%

Output has risen steadily in the last several years with average output increasing 15% per annum. In 2007, total plastic output reached 1.88 million tons valued at $3.5 billion (see Fig. 3). Output is expected to reach nearly 2.3 million tons in 2008 and 3.8 million tons by 2010. The majority of products manufactured domestically require low technological capability, such as household plastic goods (e.g., chairs, dining ware and trash cans) and plastic packaging. Local production of these two product categories and for construction plastics satisfies almost all domestic demand. Approximately nine out of ten household plastic goods available in supermarkets are made in Vietnam. Domestically-produced plastic goods tend to be manufactured from firms with less capital to invest in technology and facilities. As shown in Fig. 4, while privately held firms

Source: Vietnam Plastic News

Similar to other industries in Vietnam, such as metalworking, the plastics industry imports its technological advancement via machinery. According to the chairman of the Ho Chi Minh Plastics Association (VSPA), companies are using second-hand machinery to segue into more modern equipment. Only the largest companies, representing less than 10% of the industry, have the capital to invest in more technologically-advanced equipment. Smaller companies tend to use cheaper and less high-tech equipment from China and Taiwan. Nearly 2 out of 3 of all the plastic injection machines found in the country are from the 1990s, mainly used to produce household plastic items. More advanced
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equipment are found in countries with more developed plastic industries producing electronics and automobiles, such as Japan and the US.

since January 2008, hitting 14% in June.

Industry growth is also hindered by several other factors. According to the Vietnam Plastics Association (VPA), exporters are not proRaw material supplyor the lack thereofis ducing the quality, quantity and variety of the chief issue concerning the industry. Sev- products that importers demand. Specifically, quality is related to the availability of modern enty to ninety percent of materials are equipment (and the capital to invest in techsourced outside Vietnam. Most raw materials are supplied from abroad which comprise nological improvements), with goods pro70-75% of the cost of the finished good. This duced from more advanced machinery meeting higher quality standards. Companies also leaves the industry with small marginal added-value and even limits potential export lack brand recognition. Even though when growth due to loss of cost competitiveness. producers meet international quality stanFor example, Vietnam plastic exports to Aus- dards, they have to price their products lower. tralia face tariff rates of at least 10% less than Without strong branding, plastic manufacturers in Vietnam are hit harder when the cost of similar products from China however they raw materials rise and they are unable to are less competitive due to production costs raise prices accordingly. Low worker producand scale. tivity, lack of professional skills and inefficient company management are other industry Inflation poses another serious issue for the weaknesses. industries in Vietnam. With the devaluation of the Vietnamese dong, it is more expensive for firms to purchase imported products. Imports Plus, measures to curb inflation by raising interest rates and limiting loans, have also The plastics industrys dependence on imincreased the cost of obtaining capital. The ports can be largely attributed to the counprime interest rate has increased 3 times trys undeveloped petrochemical industry which has not kept pace with production trends. The plastic products that the industry is producing the most ofPP and PEthe country does not have capability of supplying the raw materials for. Since 2000, these two plastics have comprised 50-60% of the industrys output. All refined oil, the by-products of which are used to produce plastics, is imported since Vietnam does not have any refineries. This is expected to change by 2013 however with the completion of 3 oil refineries, the first of which is schedule to begin operation in February 2009 with a capacity of
Photo by: An Phat Plastics Co 4

Table 1 Petrochemical Plants and Projects

Company LG Vina PetroVietnam & LG Intl. PetroVietam; Mitsui; Idemitsu Kosan & Kuwait Petroleum Intl. PetroVietnam; Siam Cement Group & Vinachem Phu My Plastics Province Dong Nai Quang Ngai Thanh Hoa Product DOP Propylene & PP Propylene & PP Ethylene PE & PP Chlor-alkali EDC* VCM* PVC Ethylene PVC PVC
(thousand tons)

Capacity 30 150 350 1,650 1,450 280 330 400 100 800 100 15

Status in operation 2010 end 2013 2013 2013 2011 2011 2011 in operation 2014 in operation in operation

Ba RiaVung Tau Ba RiaVung Tau Phu Yen Dong Nai Binh Duong

(JV between PetroVietnam, Tramatsuco & Petronas)

SP Chemicals TPC Vina Chemical & Plastic Corp Viet-Thai Plastchem (SCG subsidiary)
Source: Public information

(JV between Vinachem, Vinaplast, Thai Plastic & Chemicals Public Co Ltd, a consolidated associate company of SCG)

Note: * used in PVC production

6.5 million tons/year. Only two companies, Thai Vina Plastics Co (TPC) and Phu My Plastics, currently produce PVC resin, meeting 60 -70% of domestic demand. LG Vina Plastics is the sole producer of DOP, an additive that softens and adds more flexibility to plastics. Moreover, some inputs produced domestically cost more than imported equivalents and are thus uneconomical to use.

Starting in 2010, the first of a series of petrochemical plants are scheduled to begin operation, producing much-needed olefins, polyolefins and other polymer products (see Table 1). These projects are critical to developing the countrys attractiveness as a plastic manufacturing destination. In 2007, Vietnam imported over 30 kinds of plastics resins totaling 1.66 million tons, a 22% yoy increase. These imports were val-

Fig. 5 Imported Materials for Plastic Production

1800 1600 1400 1200 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007
Source: Ho Chi Minh City Plastics Association and Vietnam Plastics Association

Amount

Additives ($mn) Resin (thous. tons) Machinery ($mn) 907 531 551

1659 1119 1147 1315

978

* Note: 2007-2008 data for imported machines were not available and are estimated based on the average annual increase of those imports from 2000-2005 (35%).
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hoping to retain customershave only passed on a fraction of the increased costs, raising prices by only 15-20%. Some other manufacturers, rather than increasing prices, have opted to operate at lower capacity or operate at a loss. Many small and medium enterprises without the capital to sustain themselves through this period have exited the market. To aid the industry, the government does not tax imports of ethylene and its related petrochemical derivatives (e.g., PP The imports rates for additives have reand PE), a fact that while reduces the impact mained consistently high. They did not go below 17%, with the exception of 2003, when of rising prices, does not offer a solution to they increased by only 7%. From 2006-2007, the supply issue. imports additives increased from 309-406 Using agricultural waste products and recymillion tons (31%). cling industrial scrap and used plastic are underutilized production alternatives. IncorpoThe import rates for plastic machinery has rating agricultural products into the manushown greater fluctuation than the others ranging from 3% to 100%. 2005 is the latest facturing process has only emerged within the last few years in Vietnam. Only a small year that data is available for machinery imported specifically for plastic manufacturing. number of companies use this method, since it has not been well-marketed or publicized In that year, manufacturers imported $164 million worth of equipment, representing 3% in the industry. Unclear regulation limits the latter alternative. Vietnamese law does not of the value of machines imported for all industries. Equipment for the plastics industry define plastic scrap and used plastic from waste. Thus companies are unable to consisoriginates from many countries, such as the tently import this material. According to US, Japan, Taiwan and Germany. ued at $2.5 billion. The per annum increase in plastic resin over the last several years has averaged 19%. Asian countries, mainly Thailand, Taiwan, South Korea and Singapore, supply the majority (85% in 2007) of plastic materials to Vietnam. PE and PP comprised 65.5% of imports in 2007, followed by PS (9%), PVC (5%), Polyester (5%) and other plastics are imported to a smaller extent. This reliance on imports leaves the industry vulnerable to worldwide price changes of inputs. In the first six months of 2008, the price of plastic grains increased by 50%, reaching $2,000-2,200/ton. In that same period, the total cost of producing plastic (inputs and associated manufacturing costs) doubled. These rapid price increases threaten the bottom line of plastic manufacturers. Despite the rising prices of inputs, producers

Photo by: An Phat Plastics Co. 6

Vietnam Plastics Association (VPA), plastic waste products that do pass inspection are required to go through a cleansing process that would make the alternative as expensive as using new raw materials. The VPA is working with the Ministry of Industry and Trade and Peoples Committee of Ho Chi Minh city to create a centralized system to define polymers by 2010.

chemical industry in 1977, three decades earlier than Vietnam. Fig. 7 2007 Exports by Product Category
Consumer goods 19% Construction 1%

Packaging 80%

Exports
Source: Vietnam Plastics Association

From 2005-2007, the export growth rate increased from 36% to a high of 53%. In 2008, export growth is expected to taper off to 41%. While plastics exports have been growing rapidly, compared to other Asian nations, Vietnam is only an emerging exporter of plastic products (see Fig. 6). In 2006, China exported $22 billion and Singapore $7.6 billion worth of plastics. This can partly be attributed to the fact that other countries have more established plastic industries. Thailand for instance has processed plastics since the 1960s and started to develop its own petro-

The Vietnam plastic industry exports 40 different kinds of plastics to 48 different countries. However, the major exports are lowvalue added productsplastic packaging and other consumer goods, such as plastic lamps (see Fig. 7). In 2007, Vietnam exported $725mil worth of plastic products, an increase of nearly 50% from 2006. Although, a significant part of that increase (40%) was driven by rising prices. The main markets for Vietnamese-manufactured plastics in 2007 were: Japan ($126mil), US ($137mil) and

Fig. 6 Plastic Exports Among Asian Countries (2006)

Laos Cambodia Philippines Vietnam Indosnesia Malaysia Thailand Singapore China 0
Source: UNCTAD 7

0.6 10.7 341 567 1,738 4,475 6,490 7,583 22,224 5,000 10,000 15,000 20,000 25,000

Value ($mn)

Cambodia ($44mil). Other countries importing these goods include Singapore, Philippines, and South Korea and to a smaller extent EU countries, such as Lithuania, Estonia and Hungary.

Market AccessBarriers to Entry

Aside from price of raw materials, the plastic industry in Vietnam faces issues common in other industries: unexpected power outages, under-developed infrastructure and legal system, and unclear and inefficient administrative procedures. Lack of skilled labor is another shared concern. While the plastics sector requires less labor-intensive work compared to the garment and textile industry, skilled workers are needed to operate the machinery. There are several universities offering majors in polymer-related subjects and whose graduates are subsequently recruited by plastic companies. However, the number of students graduating is still not enough to meet demand. Furthermore, firms comment that recent college hires tend to have theoretical rather than practical experience.

few years. Motorbike output is expected to increase by 2-2.2 million units annually up until 2015, presenting a significant opportunity for plastic manufacturers to supply plastic frames and other accessories. Globally, chemical giant BASF forecasts that plastic demand is projected increase by 6.8 billion kg annually, reaching nearly 230 billion kg by 2010. In both these markets the demand will only increase as the population increases and there are more consumers and increasingly more applications for plastics. The Vietnam plastic industry also has the potential to grow by increasing its market share in select countries. For instance, in the US and Japan, the top importers of Vietnam plastic products, Vietnam holds less than 1% and about 5% of the market respectively. In other markets, Vietnamese exports have only recently entered into Africa, the Middle East, China, India, Russia and Eastern Europe. Over time improvements in quality, branding and price will only make Vietnamese products more internationally competitive.

The industry is also receiving support from the Vietnamese government. Plastics, along with telecommunications, steel, textiles and Opportunities garments, is identified as one of the target Domestic demand for plastic has risen nearly industries up until 2010. A status that grants 12% on average each year since 2001, reach- plastic investment projects priority to receive ing 25 kg/capita in 2007, and that demand land in industrial zones and other areas as will only increase in the coming years. By well as general trade promotion at events 2010, the government wants to boost per and government funding for research and decapita plastic consumption to 40. Contribut- velopment. Moreover, through PetroVietnam ing to that, a number of industries in Vietnam and Vinachem, companies in which the State that utilize plastic goods are expected to inholds shares, the government has invested in crease production. In the automotive sector, several projects to manufacture polymers companies such as Toyota and Daewoo plan and other petrochemical products for the into increase output by up to 25% in the next dustry.
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Future Trends
With the country focusing on developing high tech industries, the technological capability of the plastic industry will follow suit to produce intermediate goods requiring greater technical and precise manufacturing. Plastic production in the north will see greater activity as the government plans to shift more of the industrys concentration from the south. As outlined in the 2006-2010 development plan by the Ministry of Industry, the plastic industry in the northern, central and southern regions will be concentrated 31%, 9% and 60% respectively.

References

Asian Federation of Plastic Industries, 2007, AFPI Directory 2006-2007 Business Wire, 2007, According to the BASF, Per Capita Consumption of Plastics Would Increase to More Than 300lbs by 2010 As Compared to 223lbs in 2001 in USA - Bioplastics Market Trends and U.S. & E.U. Outlook Din n u T Nc Ngoi, 2008, Chuyn Trang: Cng Nghip Nha Vit Nam H Bnh Minh, Reuters, 21 July 2008, Vietnam, Siam Cement in $3.77 bln Petrochemcial Deal Lao ng, S 49, 4 March 2008 PetroVietnam tham gia d n T hp ho du Long Sn 3,7 t USD Ministry of Industry and Trade, Circular No. 03/2008/TT-BCT, 14 March 2008 Nguyn Duy Ngha, Vietnam Economic News, 2007, Raising Up a Support Industry Nhn Dn, 2008, Oil Refinery and Petro-

Chemical Complex Impetus for Development of Nghi Son EZ PetroVietnam, 2008, Gii Thiu Tp on: Lin Doanh, Phng Xun Nh, VNU Journal of Science, Economics-Law, 2007, No. 1, A Perspective on Industrial Development and Industry University Cooperation in Vietnam Prime Minister, Decision No. 55/2007/QDTTg, 23 April 2007 Saigon Times Daily, 7 July 2008, pg 1, Plastics Industry Hit Hard by Mounting Material Price Thi Bo Kinh T Si Gn, 2008, Ph Trng Thng Tin Qung Co, Nha v Cao Su Vit Nam UNCTAD/WTO, International Trade Center, 2006, "Trade Performance HS VietnamNet, 2008, Business in Brief 9/1: Plastics Rake in 700 Million USD in Revenues VietnamNet, 2008, Plastic Industry Generates $200mil in Q1" VietnamNet, 2008, Plastics Industry Strives for Bigger, Better Export Targets" Vietnam Plastics Association, 2008, Lm g bnh n gi th trng nguyn liu nha? Vietnam Plastics Association, 2008, Thng Tin ng Ch V Ngnh Nha Ngy 21.04.08 Vietnam Plastics Association, 2008, Thng Tin ng Ch V Ngnh Nha, Ngy 28.04.08 Vietnam Plastics Association, 2008, Thng Tin ng Ch V Ngnh Nha, Ngy 04.07.08 Vietnam Plastics Association, 2008, Vietnam Plastics Directory 2008-2009 Vietnam Plastic News, 2008, Cho Php Nhp Ph Liu: C Cng Nh Khng Vietnam Plastic News, 2008, Ngnh Nha Lao ao Theo Gi Du
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Reported by Leah K. Tran, Research Analyst Copyright 2008 Tractus Asia Ltd. All Rights Reserved.
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