Vietnam races to keep pace with growth, Solutions!, Online Exclusives, July 2003

Vietnam races to keep pace with growth

By Jim Kenny, Contributing Editor

One of the smaller Asian countries that has done well in recent years is Vietnam. Indeed, according to the leading producer group, Vinapimex, the country’s paper consumption is showing relatively stable increases of 10% per annum, with newsprint growing at 7% per year, printing/writing and packaging paper are around 10% and other grades even higher, reaching 15% per year.

To meet the projected consumption growth highlighted in Table 3, the group already has a host of new projects on the drawing board as Jaakko Pöyry’s associate principal in Singapore, Ilkka Kuusisto, pointed out. “Vietnam is certainly investing. For instance, Bai Bang is expanding its kraft pulp and printing/writing paper capacity. In countries such as Vietnam it can take a bit of time for projects to be realized, but in this case things have moved a bit faster because the project is being supported by Swedish development aid,” he said. “At the moment, Bai Bang is upgrading two PMs to increase capacity from 50,000 tonnes/yr to 100,000 tonnes/yr and the pulp line expansion will follow that. Since Vietnam is quite dependent on imports at the moment, it will be targeted at domestic consumption so that will really help the country to replace those imports.”

Vinapimex also realizes that it will have to invest in to ensure that it has the quality required to stop the market from being taken over by overseas producers as its markets develop. As the company noted, “The paper industry has more than 90% of domestic market share in printing/writing paper, while newsprint from Bai Bang occupies 80-90% of market share. These products are made of domestic material so our competitive ability is high, but if we don’t raise the quality and lower our costs in the future, it will be difficult to compete with imported paper.”

Among the other challenges currently facing Vietnam’s pulp and paper industry are recent energy price increases, the impact of drought, outdated equipment and associated production costs, price controls and potentially serious customs difficulties if imported wastepaper contains any images that the authorities consider sexual in nature.

With import tariffs of 40-50%, the industry has managed to keep imports at bay for some time, but trade liberalization is set to see those tariffs drop dramatically over the coming years, leaving domestic producers with some hard choices to make.

As one Vinapimex manager described the situation, “The worker salary is low, but the salary expense per unit of product is high. In Indonesia, there are 300 workers to produce 500,000 tonnes/yr of pulp. Bai Bang Paper Company produces 50,000 tonnes/yr of pulp and 70,000 tonnes/yr of paper, but has 3,500 workers. Tan Mai Paper Company is better, but still needs 1,000 workers.”

Clearly, Vietnam’s pulp and paper industry will require some major restructuring in the years to come, but it is clear that foreign investments - such as a new packaging plant proposed by the Finnish group, Huhtamaki - will play a crucial part in meeting fast growing demand for consumer and food packaging in addition to publication grades.