Plastic sector under pressure from foreign firms

Thursday, Nov 03, 2016 17:00

People visit Hoa Sen Plastic Pipe Plant in Binh Dinh Province's Nhon Hoa Industrial Zone. — VNA/VNS Photo Quoc Dung
HCM CITY (Biz Hub) — Plastic firms in Viet Nam are facing fierce competition and are at the risk of being acquired by foreign companies, experts said at a conference in HCM City on November 2. 

Pham Van Bac, deputy head of construction ministry's department of building materials, said the plastic industry has potential to grow as plastic consumption in the country is still low, even as he acknowledged the challenges the sector faces.

As per the National Housing Development Strategy, the annual housing area growth is expected to be 5 to 10 per cent, or equivalent to 1-1.2 million sq.m, which will increase the demand for building materials, which includes plastic.

There are two main products in building plastics - plastic pine and plastic profile – and these are being used instead of wood and steel for door and window systems.

Statistics from the ministry shows that a house on average has 40sq.m of doors and windows. Of this, 35 per cent or 15sq.m is plastic. In addition, 80 to 90 per cent of constructions have been using plastic doors and windows.

The demand for plastic has risen from 37kg per person in 2013 to 41kg in 2015. This level is still low compared to the average of 48.5kg per person in ASEAN region and the world average of 69.7kg. The US has the highest demand for plastic, with an average of 150-169kg per person per year.

"The rising demand means that local plastic firms have the opportunity to increase their market share by making investments to improve technology and capacity," Bac said.

The recovery of the real estate and construction sectors has stimulated demand for plastic products, Dang Tran Hai Dang, deputy director of VietinBankSc's research centre, said. The plastic sector also has a prosperous outlook thanks to the many free trade agreements Viet Nam is part of. 

However, the local plastic sector has to face the challenges of competition from foreign producers and the risk of unstable imported material supplies, Bac said.

Many foreign plastic companies have invested in Viet Nam to take advantage of land leasing and taxation incentives and the availability of cheap materials, among other things. Foreign investors prefer acquiring local companies with certain market share and good performance as they can save money.

Dang listed some major acquisitions since early 2016, including Korea's Dongwon Systems Corporation's takeover of Minh Viet Packaging One Member Company Ltd. Thailand's SCG Building Materials is planning to pump in US$6 billion to consolidate its position in the Vietnamese plastic market, he said.

Foreign companies are making inroads into the Vietnamese market and putting pressure on domestic production, he said, adding that their experience and financial potential will help them benefit from the free trade pacts. 

Nguyen Ba Hung, chairman of Dong A Plastic Group (DAG), said most domestic plastic producers are using old technologies, which affects their competitiveness. "DAG has gradually replaced its technology with those from Europe. We will invest around $1 million for research and development in the near future," Hung said.

The BIDV Securities Corporation has forecast that the average demand for plastic products will increase to 45kg per person per year in 2020, which represent an annual growth of 4 per cent. — VNS

Comments (0)