Image By: Steve Toloken Commuters crowd a roadway in Vietnam. Rising costs in China have turned focus to Southeast Asia as a global manufacturing alternative.
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HO CHI MINH CITY, VIETNAM — Vietnam — considered part of the next generation of Asian tigers — has disappointed a lot of plastics companies with its sputtering economy the last two years.
But some signs of recovery were visible on a recent trip to the Plastics and Rubber Vietnam 2014 trade show.
Multinational companies are boosting investments, and Vietnam’s plastic product exports are rising more than 10 percent a year. Germany’s machinery association said its exports of plastic and rubber equipment to the country jumped 20 percent last year.
But every positive report seemed balanced by a negative, or at least a cautious, one. Italian plastics and rubber machinery exports to Vietnam dropped in 2013 to half typical levels (and one-third of a record set in 2011).
Large Chinese extruder pipe maker Ningbo Fangli Group Co. Ltd. told Plastics News that the market remains weak after a very strong 2010 and 2011.
And an executive with German caps and closure maker Bericap GmbH & Co. KG suggested Vietnam’s consumer market may still be too price sensitive, although the company had a large booth at the show, held March 4-6 in Ho Chi Minh City.
On the plus side, global brands are investing and driving plastics-related work.
South Korea’s Samsung, the world’s biggest manufacturer of mobile phones, now produces half of the 250 million handsets it sells worldwide every year in Vietnam, and is investing more. Samsung accounted for 10 percent of Vietnam’s total foreign trade in 2012, according to local news reports.
Investments like that prompted the top executive of South Korean injection press maker Dongshin Hydraulics to disclose at the show that his firm was seriously considering building a manufacturing plant in Vietnam, which would make it the second there, after Chinese company Haitian.
Overall, the economy is marginally better. GDP growth, at about 5.5 percent now, is well below the 8 percent of its go-go years but stronger than 2012, which was the country’s toughest since 1999.
The European Chamber of Commerce in Vietnam said it found “significantly increased” business confidence in its most recent survey, issued in February, reflecting what it said was the taming of double-digit inflation and the likelihood of an EU-Vietnam trade pact.
“There is still some difficulty actually but… there is some atmosphere that it is the end of the tunnel,” said Josef Schulak, director of CET Asia Pacific Pte. Ltd., the Singapore-based agent for extruder maker Battenfeld-Cincinnati GmbH. “Some of the big companies are building factories and investing in equipment.”
He said Vienna, Austria-based Battenfeld-Cincinnati has sold 60 production lines in Vietnam in the last two decades and maintains a consistent presence. “It helps us that we show up in bad times also,” he said.
Vietnam’s exports of plastic products have been growing — up 10 percent last year to $1.8 billion, compared with $800 million in 2007. That mirrors China’s fast rise as an exporter after it joined the World Trade Organization in 2001; Vietnam joined in 2006.
The Vietnam Plastics Association projected export growth of more than 13 percent this year, with lower-end segments like plastic bags performing well, local press reports said. Raw material exports reportedly rose 57 percent to $407 million in 2013.
One of the potential long-term pluses for Vietnam is its local market. It has a population of 90 million, third-largest in Southeast Asia after Indonesia and the Philippines, along with the fastest-growing middle class in the region, one recent report said.
That December study from the Boston Consulting Group said Vietnam’s middle income group will triple to 33 million people by 2020.
“The Vietnam market is a very big potential market because of the population,” said Joanne Zhou, sales manager with Fangli. “We experienced good business in Vietnam in 2010 and 2011. But in these few years, because of the market slowdown, our sales have dropped down… the market is very, very slow.”
Zhou thought it could be 2015 or 2016 before investment picks up: “Our customers are telling us that their production capacity is much more than their demand.”
Italian machinery maker Moretto Plastics Automation agreed the market had been tough the last two years as high interest rates stifled new investment.
But the company said it saw recent positive signs like cheaper borrowing costs and more investment in Vietnam from multinational manufacturers.
“Now it is starting to increase. We are a little bit confident that we are turning the page,” said Michele Pallioto, Far East sales manager with the Massanzago, Italy-based firm. “Some multinational companies are moving their factories from China to Vietnam. I don’t know if the reason is they can find cheaper manpower in Vietnam.”
Plastics use expected to rise
The Vietnam Plastics Association estimates per capita consumption will grow from 30 kilograms a person in 2012 to 55 kilograms by 2015. That compares with a 2012 world average of 37 kilograms and more than 120 kilograms in the United States and the European Union.
One Chinese plastics maker reported that it began supplying toothbrush factories in Vietnam 18 months ago with polyamide filaments, and it came to the Vietnam show hoping to build on that new business by selling its grades of nylon resins for injection molding.
“We have already established good relationships with Unilever, Colgate, P&G, and they are growing here,” said Jerry Weng, business manager with with Cixi Jieda Nanometer Compound Materials Co. Ltd. in Shanghai. “The market has a lot of potential.”
For the European plastics machinery makers, it remains a small market, however.
Italy’s Assocomaplast plastics and rubber machinery and molds trade association said a typical year sees Vietnam buying about 6 million euros of its equipment, but that fell to about 3 million euros in 2013.
The Germans said last year they sent 10.9 million euros ($15 million) in plastics and rubber machinery to Vietnam through November, up from 8.9 million euros ($12.2 million) in 2012.
To put the German figures in perspective, however, the country sent more than $131 million worth of plastics equipment to South Korea in 2012.
VPA said Vietnam imported about $1.1 billion in plastics machinery in 2010, but the Italians at least suggested in a news release at the show that Vietnamese companies still seem to favor equipment from other developing countries.
“With particular reference to Vietnam, it shall be remarked that the Italian export has been somewhat experiencing a decline,” Assocomaplast said, arguing that its drop was mirrored by some other developed countries.
“On the other hand, the Vietnamese import from other emerging countries like China, offering standard equipment with less technological content, has increased considerably in the latest years,” it said.