Rising prices of plastic materials put a burden on businesses

Saturday, Mar 19, 2022 10:39

Inside a Tien Phong Plastic Joint Stock Company factory. The gross profit margin of Tien Phong Plastic Joint Stock Company (NTP) last year dropped sharply from 31 per cent to 24 per cent. — Photo courtesy of the company

The price of plastic resin has increased sharply following the price of oil, putting pressure on plastic enterprises.

According to data from the global financial portal Investing, the price of polyethylene (PE) resin has increased by 10.4 per cent in the past three months, from December 9, 2021 to March 8, 2022. Similarly, the price of polypropylene (PP) resin has increased by more than 10 per cent.

Plastic resins are made from petrol products, typically PP and PE. Therefore, fluctuations in oil prices have directly affected the price of plastic resins.

Plastic resins account for about 60-70 per cent of the cost structure of plastic manufacturing enterprises, thus the current high prices of plastic resins lead to the increases in input costs of plastic enterprises.

In 2021, the price of input materials increased sharply by 1.6 times, making a record hike in history, which greatly affected the performance of the businesses in the industry.

At a meeting with investors on February 17, 2022, Nguyen Hoang Ngan, General Director of Binh Minh Plastics Joint Stock Company (BMP) said last year, the company made a profit of VND214 billion (US$9.4 million), down 59 per cent compared to 2020. This was also the lowest profit in the past 13 years.

In 2022, Binh Minh Plastics sets a high growth business plan, with a target revenue of VND5.68 trillion, an increase of 25 per cent compared to 2021 and pre-tax profit rising by 109 per cent to VND560 billion.

This plan was built on the scenario in which the price of plastic materials in the last months of 2021 and the beginning of this year is stable. However, with new developments from the world geopolitical situation, the company may not fulfil its targets.

Facing adverse developments from the market, he said Binh Minh Plastics has proposed a solution, which is controlling input costs. The company will actively monitor raw material prices closely so that it will be able to stockpile enough materials when the prices go down.

“The Board of Directors will consider carefully to ensure the competitiveness and profitability of the company,” he said.

Since 2020, the price of plastic resins has increased sharply, affecting the profit margins of plastic enterprises. Increasing the storage of raw materials is a strategy implemented by leading plastic enterprises.

Inventory of Binh Minh Plastics at the end of 2021 was nearly VND619 billion, accounting for nearly 22 per cent of total assets.

At Tien Phong Plastic, the inventory value was VND1.08 trillion, accounting for 22.1 per cent of total assets.

The gross profit margin of Tien Phong Plastic Joint Stock Company (NTP) last year dropped sharply from 31 per cent to 24 per cent. However, the company maintained a slight increase in net profit of 4 per cent compared to 2020 thanks to the reduction of financial expenses and selling and administrative expenses.

An Phat Xanh Plastic Joint Stock Company (AAA) saw gross profit margin down from 10.46 per cent to 9.9 per cent.

However, thanks to the revenue from real estate leasing and land leasing, the company still achieved positive growth in profit for the whole of 2021.

Many other plastic enterprises also saw their gross profit margin decreasing in 2021 due to the increase in raw material prices. — VNS

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