REPORT ON VIETNAM PLASTIC INDUSTRY - Consulting and Research Company for Technology Transfer and Investment

At present, most of household plastics sold in supermarkets are local products and account for around 20% of the industry's total output.Another product category that has achieved strong

Consulting and Research Company for Technology Transfer and Investment

REPORT ON

VIETNAM PLASTIC INDUSTRY

Hanoi, August 2013

TABLE OF CONTENTS

LIST OF TABLES 4

1 INTRODUCTION 5

2 CURRENT SITUATION OF VIETNAM PLASTIC INDUSTRY 7

2.1 Arrangement and distribution of Vietnamese plastic enterprises 7

2.2 Output 9

2.3 Market and Export capacity 10

2.4 Material sources 12

2.5 Machinery and technology 15

2.5.1 Machinery 15

2.5.2 Technology 17

2.6 Labor 18

2.7 Development orientation and policy for plastic industry to 2020 20

2.7.1 Development orientation 20

2.7.2 Gross output targets of plastic industry 20

2.7.3 Value added targets of plastic industry 21

2.7.4 Production targets of plastic products 21

2.7.5 Plastic industry products proportions targets 21

2.7.6 Plastic industry products export targets 21

2.7.7 Development master plan to 2020 22

2.7.8 PP import tax 22

3 SURVEY ABOUT PLASTIC PROCESSING TECHNOLOGIES IN VIETNAM 24

3.1 Introduction 24

3.1.1 Survey objectives 24

3.1.2 Survey objects 24

3.1.3 Survey tools 24

3.1.4 Survey process 25

3.2 The survey’s main results 25

3.2.1 Type of ownership 26

3.2.2 Activity area 26

3.2.3 Type of business 27

3.2.4 Activity scope 27

3.2.5 Staff 28

3.2.6 Turnover 29

3.2.7 Export Capacity 30

3.2.8 Current situation of processing technologies 31

3.2.9 Plans for purchasing machine, equipment in next two years 34

4 CONCLUSION 35

LIST OF TABLES

Table 1 Distribution of companies by geographical area 7

Table 2 Distribution of companies by product category 8

Table 3 Plastic output and consumption index 9

Table 4 Output of plastic products by main categories 9

Table 5 Export turnover during the period 2006 – 2012 10

Table 6 Export turnover by region 2008-2012 (thousand USD) 11

Table 7 Export turnover by country 2008-2012 (thousand USD) 12

Table 8 Quantity and turnover of imported material in 2008-2012 13

Table 9 Production capacities of some big domestic companies 13

Table 10 Plastic materials imported into Vietnam 14

Table 11 Plastic machinery market size 15

Table 12 Rubber and plastic machinery (HS 8477) World exports to Vietnam 16

Table 13 Imported machines for plastic manufacturing 18

Table 14 Labor of plastic industry 19

Table 15 Gross output targets of plastic industry 20

Table 16 Added value targets of plastic industry 21

Table 17 Production targets of plastic products 21

Table 18 Plastic industry products proportions targets (unit: %) 21

Table 19 Plastic industry products export targets 21

Table 20 Development master plan in 2011 -2015 period 22

Table 21 Development master plan in 2016 -2020 period 22

Table 22 PP import tax 22

Table 23 Distribution of surveyed enterprises by type of ownership 26

Table 24 Distribution of surveyed enterprises by region 26

Table 25 Surveyed companies by form of ownership 27

Table 26 Survey companies by type of plastic products manufactured 28

Table 27 Surveyed companies by employees categories and form of ownership 29

Table 28 Survey companies by turnover in the last three years (2010, 2011, 2012) 30

Table 29 The ratio of exported product on total year production 30

Table 30 Ratio of plastic technologies being used in surveyed companies 31

Table 31 Surveyed companies by machine exporters 31

Table 32 Surveyed companies by turnover category and new machines purchased 32

Table 33 Surveyed companies by form of ownership and new machines purchased 33

Table 34 Plans for purchasing machine, equipment in the next two years 34

1 INTRODUCTION

The plastic industry commenced almost half a century ago in Vietnam; however, the production remained limited in compared to that of other countries in the region like Malaysia, Singapore, Thailand and China

In the 1990’s the output was on average equal to 380,000 tons and consumption hovered around 3.8 kg/person With the economic reforms of the mid-90’s, plastic production boomed growing 20-25% each year while diversifying in quality and range One of main reasons attributed to the plastic industry growth is a still low starting point, an average consumption per capita lower than

of the region and the world This is expressed by an average growth of over 20% in value and over 18.75% in production from 2006 until now Plastic industry size is accounting for 4.48% of local whole industry and playing a role of an essential supplementary industry that needs

development in state economy plans Vietnam plastic industry is one of ten industries that are favored by the government for development priority due to its excellent and stable growth as above-mentioned, performing quite strong in exports activities and having good competitiveness over other regional countries

Vietnam’s production output of plastics per capita kept on growing strongly, from 23.2 kg of plastic per person in 2005 to 42 kg per capita in 2012 At present, most of household plastics sold in supermarkets are local products and account for around 20% of the industry's total output.Another product category that has achieved strong growth and made up the largest production ratio (around 40%) is plastic packaging, nearly all of which is also locally made Meanwhile, state owned enterprises typically produce also technical and construction items In basic sectors such as daily-use household plastic products, domestic enterprises, especially small and medium sized ones (SMEs), are the major producers

Competition in the Vietnamese market is currently quite vigorous Many companies are in the hands of Chinese-Vietnamese who procure supplies from family contacts living around the world The Vietnamese government is encouraging their merger to cope with the increased competition after WTO entry

Vietnamese plastic products have been sold in 151 countries all over the world such as Japan, USA, The Netherlands, Germany, Cambodia, UK, Indonesia, and Malaysia, and so on Last year,Vietnam’s plastic export revenue reached nearly USD 2 billion, making an increase of 25% year

Furthermore, the plastic industry is facing difficulty, especially firms using PP as raw material for the production Because plastics enterprises will bear import duty for plastic material

Polypropylene (PP) from 2014, when the import tariff shall be increased from the current level

of 0% to 1% in 2014, up to 2% in 2015 and 3% from 2016 onwards1

Other challenges include the high ratio of unskilled workers, at 70-80% of the workforce and

of SMEs which account for 80% of the total and lack capital to improve production

1 Circular No.107/2013/TT-BTC of August 12, 2013, amending preferential import tax rates applicable to some commodities of headings 2707, 2902 and 3902 in the preferential import tariff

2 CURRENT SITUATION OF VIETNAM PLASTIC INDUSTRY

2.1 Arrangement and distribution of Vietnamese plastic enterprises

The number of plastic corporations in Vietnam reduced sharply from 2,700 in 2006 to 1,400 in

2012 There are some main reasons led to this situation:

- The development of the plastic industry led to strong investment in large enterprises.Small businesses do not have enough capacity so have to cooperate/merge together to bestrong enough to compete with big business

- Due to economic crisis during last time also led to the situation that small businesses facewith difficulties in accessing capital for development investment

- The cost of production (including factors: price of input materials - technology,production costs) rise is also another cause of the reducing of the number of plastic firms.Due to the above reasons, in plastic industry there existed a conflict between a large numbers ofcompanies with real capacity Among plastic firms, only 6% are state-owned, but they

represent about 25% of the total capital invested in the industry State-owned companies tend to

be larger, employing more workers and having greater total investments than their small or medium sized private competitors The rest are foreign invested enterprises, which account for about 15% total number of plastic firms but having 40% of overall investments As for private enterprise, some business having right investment for technology and the skills of the

workforce have a noticeable development, but the number of these firms is very limited In fact,private firms account for over 70% total number of plastic firms but having only 35% of overallinvestments

According to VPA report 2012 and Statistical Yearbook of Vietnam 2012, there are 1,400 firms operating in plastic industry Most enterprises are located in the South of Vietnam HCMC and the southern provinces contribute 83% to the total plastics production Hanoi and the northern provinces account for 13% and the central region covers the remaining 4%

Table 1 Distribution of companies by geographical area

Source: VPA, GSO

In the present structure of the plastics industry, packaging firms account for the largest

proportion (39%) and they also represent the largest export ratio (accounting for 66%)

Consumer group accounted for 22%, this group narrowed most compared to 2007 period

Construction group had strong growth in the years 2007 - 2008 due to huge demand for

construction at that time; however, this segment is facing many difficulties due to the freezing of the real estate market in the past few years Technical plastics group accounted for 19%

Table 2 Distribution of companies by product category

quality produces such as pressure pipes, cover of TV

Source: VPA report

Output (thousand tons) 1,880 2,294 3,200 3,800 4,120 4,500

Consumption index (kg/

Note: * Estimated

Source: Ministry of Industry and Trade

In recent years, the output of Vietnam plastic industry has continued to grow, although at aslower pace, given the difficulties brought about by rising prices of petrol and materials

Table 4 Output of plastic p roducts by main categories

Volume (tons)

Rate (%)

Volume (tons)

Rate (%)

Volume (tons)

Rate (%)

Volume (tons)

Rate (%)

Volume (tons)

Rate (%)

Packaging 714,400 38% 917,600 40% 1,328,000 41,5% 1,482,000 39% 1,627,400 39,5% 1,800,000 40% Consumer 488,800 26% 619,380 27% 896,000 28% 1,140,000 30,% 1,277,200 31% 1,440,000 32% Construction 413,600 22% 481,740 21% 576,000 18% 646,000 17% 618,000 15% 652,500 14.5%

Technical 150,400 8% 160,580 7% 272,000 8,5% 342,000 9% 370,800 9% 382,500 8.5% Others 112,800 6% 114,700 5% 128,000 4% 190,000 5% 226,600 5,5% 225,000 5% Total 1,880,000 100% 2,294,000 100% 3,200,000 100% 3,800,000 100% 4.120,000 100% 4,500,000 100% Note: * Estimated

Source: Ministry of Industry and Trade and GSO

Of the total plastic output in 2012, plastic packaging accounts for 40% while plastic consumer,construction materials, and technical account for 32%, 15% and 9% respectively

2.3 Market and Export capacity

Vietnam plastic exports has enjoyed a noticable growth since 2007 2010 was a milestone of Vietnam plastic exports with the turnover of over USD 1.2 billion for the first time Since then, export revenue kept on strongly growing to nearly USD 2 billion in 2012 This is considerable growth by Vietnam plastic industry, showing a strong recovery of plastic industry after the 2008 financial crisis, a positive sign of development for Vietnam plastic industry

Table 5 Export turnover during the period 2006 – 2012

Export turnover (million USD) 478 750 922 968 1,268 1,599 1,995

Source: Ministry of Industry and Trade, Vietnam Custom

Vietnamese plastic products have been sold in 151 countries all over the world such as Japan, USA, The Netherlands, Germany, Cambodia, UK, Indonesia, and Malaysia, and so on During last five years, Pacific Asia has still been the biggest market of Vietnam (nearly 60% in 2012) Europe market kept a stable ratio (around 28%).

Table 6 Export turnover by region 2008-2012 (thousand USD)

Ratio

(%)

Export value

Ratio

(%)

Export value

Ratio

(%)

Export value

Vietnam plastic export turnover to Italy is quite stable (around 20-30 million USD) The export turnover to China has reduced significantly (from 247 million USD in 2008 to 26 million USD in2012) Japan is still top-three importer for Vietnam plastic products However, the export

turnover has decreased sharply from 321 million USD to 143 million USD This situation is the same with Thailand The total turnover of Vietnam plastic products to Thailand declined from

137 million USD to 27 million USD

Table 7 Export turnover by country 2008-2012 (thousand USD)

can meet only 15-20% percent of the country’s demand and in fact 80% - 85% of raw materials should be imported from abroad.

Table 8 Quantity and turnover of imported material in 2008-2012

Source: Ministry of Industry and Trade

Table 9 Production capacities of some big domestic companies

1 PVC Phu My Chemicals &

Chemicals Group

150.000 tons/ year

-Hung Nghiep Co., Ltd 150.000 tons/ year 30% for export

4 EPS Việt Nam Polystyrene

6 BOPP film Youl Chon Vina Plastic

Formosa Taiwan Hung Nghiep Co., Ltd

-40.000 tons/ year

Source: VPA

At present, Vietnam has imported over 30 categories of plastic materials served for production,

in which PE and PP are the most imported ones In 2012, PE was imported from 25 countries in the world with total imported quantity 544 thousand tons, worth 775 million USD In which, Saudi Arabia is the biggest PE exporter to Vietnam, counted 33% of total PE imported PP is the second largest imported material in plastic industry with 472 thousand tons, worth 701 million USD Saudi Arabia still kept the position of top PE exporter to Vietnam, counted 22% of total

Imported quantity

(Tons)

Value

(Thousand USD)

Imported quantity

(Tons)

Value

(Thousand USD)

Imported quantity

(Tons)

Value

(Thousand USD)

Imported quantity

(Tons)

Value

(Thousand USD)

PE 547,555 856,113 692,251 795,528 750,775 1,016,752 819,182 1,218,962 544,936 775,030

PP 495,494 731,504 628,457 670,299 607,493 817,569 629,057 1,021,762 472,011 701,170 Polyester 68,300 112,810 67,357 96,786 72,476 123,834 65,155 129,338 202,324 361,704 PET 61,225 85,691 133,893 144,915 187,149 244,073 212,361 353,105 146,706 212,321 PVC 98,988 127,563 139,636 131,736 131,597 152,849 134,847 181,639 133,327 155,871

PS 80,710 146,470 77,040 103,688 90,948 150,810 102,526 202,060 108,027 195,987 ABS 48,178 96,997 63,527 100,415 69,154 144,359 78,358 186,994 87,041 189,670 EVA 45,495 90,909 48,746 73,576 56,703 112,489 57,097 140,889 66,338 131,816 Acrylic 32,732 59,483 40,369 71,343 55,673 113,730 53,263 128,792 60,260 138,397 Polyether 32,028 74,180 42,998 86,312 52,068 126,506 61,332 193,912 58,580 174,342

PC 18,282 51,914 19,875 44,364 30,050 84,833 35,440 111,249 40,088 111,493

PA 10,947 34,927 15,930 40,661 20,603 69,544 42,796 161,783 39,789 130,691

PU 37,381 112,414 38,748 108,608 49,233 147,146 47,694 159,441 34,275 116,066 Alkyd 25,951 45,627 30,294 45,376 32,643 52,448 32,277 61,166 33,918 66,614 EPS 28,011 44,007 36,467 44,256 46,863 69,838 40,656 67,698 30,516 48,064 Lactic-

acid PP 5,040 10,505 10,337 14,308 10,854 19,277 8,845 22,014 27,441 46,872Amino 5,453 9,115 5,630 9,597 5,585 9,962 8,061 18,782 13,953 30,430 Silicone 6,457 30,013 5,567 27,128 8,255 42,454 9,545 50,984 13,653 75,768 Epoxide 12,679 32,248 11,677 25,163 13,395 37,753 14,873 52,873 12,727 48,980 Xenlulo

& DX 9,183 29,448 9,957 31,404 12,292 40,469 11,753 52,990 12,437 49,302Styrene-

Urea 11,107 12,452 9,532 10,420 5,205 6,503 3,602 5,879 7,121 8,549 Cumaron

– indene 4,205 7,009 5,009 6,678 5,414 8,143 5,770 11,063 6,110 12,300VCM 1,128 3,425 2,117 6,997 3,580 12,551 3,358 13,539 4,436 13,605 PMMA 6,945 16,369 7,601 16,801 5,671 15,827 6,505 19,879 3,821 10,973 Natural

Polymer 1,452 5,708 1,702 7,216 1,395 10,176 1,893 9,865 1,614 9,060Ion-

Source: Ministry of Industry and Trade/ Vietnam Customs

2.5 Machinery and technology

2.5.1 Machinery

Most of the capital equipment in the plastic industry is imported (from about 60 countries in the world) The majority of imported machinery is from Asia countries (including Taiwan, Japan,

China, South Korea) and Europe countries (Germany, Belgium, Italy and Austria) However,

more than half of imported machine are out-of-date equipment

The total market for plastic machinery in 2012 was approximately US$ 450 million, increasing

from US$ 148 million in 2005 (3 times)

Table 11 Plastic machinery market size

During the period 2007-2012, China has kept this 1st position in rubber and plastic machinery

exporters to Vietnam (nearly 30% of total imported value) Top-five exporters to Vietnam in

2012 are China, Japan, Taiwan, Korean (Republic) and Italy (from rank 7th in 2007 to 5th in

2012) Total exported value of this five countries to Vietnam in 2012 counted nearly 90% total imported value of Vietnam Notingly, Slovakia (Slovak Rep.) imported rubber and plastic

machinery to Vietnam boosted from rank 45th (588 USD) to top-ten exporter to Vietnam (3

million USD)

Table 12 Rubber and plastic machinery (HS 8477) World exports to Vietnam

Unit: Thousand USD

China 83,021.707 89,055.302 67,579.331 108,201.416 117,423.193 132,021.447 Japan 54,538.341 83,258.400 29,508.559 74,903.936 97,959.538 122,889.416 Taiwan 72,616.531 103,885.157 57,232.124 83,881.680 99,744.614 80,680.305 Korea (Republic) 71,063.725 24,229.344 18,796.870 37,723.784 38,982.265 57,500.157

Italy 5,349.275 16,754.280 2,604.884 12,030.714 23,615.516 11,002.750

Malaysia 5,030.842 6,736.048 4,184.939 2,095.831 10,204.797 10,904.165 Austria 1,879.746 1,249.930 8,609.250 3,176.779 3,907.120 7,291.144 Germany 13,628.807 21,898.348 30,570.240 12,247.070 10,492.372 6,408.460

technology is still simple and concentrated in the major enterprises only Since 2005, many

plastic processors in Vietnam have invested considerable money in upgrading their

manufacturing equipment and machinery to improve their products in terms of quality and

design, thus being able to compete successfully in domestic and international markets For

instance, a few large firms are manufacturing high-quality and hi-tech plastic products by using advanced equipment and machines imported from Germany, Italy and Japan

In average (during the period 2007-2012), Vietnam imported 100 injection machines, over 500 injection blow molding machines and 200 extrusion machines per year Around 30% of importedmachines are new machines and the rest (70%) are second-hand ones

Up to now, according to data from Ministry of Industry and Trade, there are about 10,000

injection machines, extrusion machines and injection blow molding machines, including nearly 6,000 injection molding machines, more than 3,000 blow molding machines and nearly 1,000

extrusion machines

Injection technology

This technology is used to make plastic components and parts for the electronics, electrical

power, motorbike and automobile industries Among 6,000 injection molding machines, 75% of them are the second hand used out-of-date technology (made from 2005) Around 1,000 injectionmolding machines of them are of new generation The total imported value of injection molding machines of Vietnam increased from 50 million USD in 2007 to 76 million USD in 2012

Some main brands are currently present in the Vietnam market:

Europe: Engel (Austria); Demag – Battenfeld – Boy- Krauss maffei, Arburg (Germany)

America: Husky (Canada)

Asia

Mitsubishi, Niigata, Toshiba, Kawaguchi, Sumitomo, Nissei, Kurabe (Japan)

Chen De, Chuan Tian, Hai Tian, Yue Hong, Jwell, Keewa, Dakelianshun (China)

LG, Dongshin, Woo Jin, Jinhwa (Korea)

Chuan Lihfa, Fu chu sin, Lien yu, Yanghing, Jonwai, Han Chang (Taiwan)

Injection blow molding technology

A large number of plastic product manufacturers in Vietnam are using injection blow molding

machines to produce plastic packaging products, including PET bottles and kegs The total

imported value of blowing machines decreased from 26 million USD in 2007 to 14 million USD

in 2012

The main brands identified in Vietnam market include:

Europe: Sipa (Italy); Sidel (France)

America: Husky (Canada)

Asia: Nissei - Placo (Japan), Kaimei - Parker (Taiwan), Sinco (Thailand); Hongzhen (China)

Extrusion Technology

In Vietnam, this technology is used for making such products as water drainage PVC pipes,water supply PE pipes, aluminum-plastic pipes, optic cables, PVC doors, frames, roofing, andwall coverings This is a pellicle-blowing technology to make plastic packaging materials frompellicles This technology is used for blowing polyethylene (PE), polypropylene (PP) bags andPVC pellicles

The total imported value of extruders increased slightly from 40 million USD in 2007 to 46 million USD in 2012

The main brands include:

Europe: Amut SP (Italy); Battenfelf – Kraussmaffei (Germany); Cincinati (Austria)

America: PTI – Plastic technical International GmbH, SMS Plastic Technology, Tecnomatic (US)

Asia: Shin Kwang Engineering Co., (SK), Yarn Bang Electrical Machinery Co., ltd., SM Platek (Korea); Ka lien, Wuhan, Sen fa Machine Co., ltd (Taiwan); Koei Industrial Co., Ltd, Nissei, Sumittomo, Mitsubishi (Japan), Zhangjiagang (China)

Table 13 Imported machines for plastic manufacturing

Unit: Thousand USD

Vacuum molding machines and

other thermoforming machines 55,751 36,507 7,843 28,378 23,822 40,501

Others machines for rubber and

firms are facing with a scarcity in labor supply, especially skilled labor that are able to using new generation equipments In 2012, there are about 130,000 labors working in plastic

industry but that 70% of plastic industry workers were unskilled, low professional skill,

unable to operate modern equipments This percentage is somewhat higher than the combined average of unskilled workers in other industrial sectors such as textiles, footwear… Workers and engineers working in the plastic industry in Vietnam are trained from different mechanicalengineering branches of universities and vocational school, there are no training institutions for this sector2

Table 14 Labor of plastic industry

Source: Ministry of Industry and Trade

According to Human resource development planning of Hochiminh city (HCMC), there are four major economic sectors for the period 2013-2015, orientation for the period 2020 – 2025:electronics, information technology, food processing, chemicals – rubber – plastic and

mechanics HCMC needs 45,900 jobs In which chemicals – rubber – plastic sector needs

in the future

 Capacity building for universities, colleges and vocational training to train good

2 In fact, recently, there are some training centers, colleges provide training courses relating: plastic – chemical – petrochemical but it is very few, and their number of students/trainees are small.

managers and skilled workers, meeting the growing needs for labor force in plastic industry.

 Develop training centers, vocational training for plastic industry These centers operatewith the support of enterprises and organizations at home and abroad These centers are responsible for coordinating with professional units to formulate long term, short term, and thematic training programs to update knowledge and disseminate the latest domestic and international information for trainees

2.7 Development orientation and policy for plastic industry to 2020

Production and consumption of plastic enterprises in the industry next time will be affected significantly from tightening monetary policy, decreasing public investment spending, as well

as the grim situation of the construction industry and real estate Under this curriculum, on 17 June 2011, the Ministry of Industry and Trade issued Decision no 2992/QD-BCT approving the planning on development of Vietnam's plastic branch until 2020, with orientation to 2025 According to this plan, Plastics’ export revenue is expected to reach US $2.15 billion and US

$4.3 billion by 2015 and 2020, respectively; the growth rate is expected approximately

17.56% per year in the period 2011-2015, and, gradually reducing plastic packaging products and plastic consumer, increasing proportion of construction and technical plastics

2.7.1 Development orientation

 Development of plastic industry shall be oriented to modernization, intensifying

automation, gradually eliminating old equipment and technologies to substitute with world state-of-the-art equipment, new materials usage to ensure quality, safety,

hygiene norms, meeting environmental criteria requested by Vietnam and the world

 Plastic industry investment should go straight into modern technologies to create high quality products with low costs that could compete on domestic and world markets, ensuring ecological environment

 To mobilize all resources at home and abroad to focus on investment in plants

producing materials, semi-finished products, chemicals, additives for plastic industry Besides, to encourage investment in mold manufacturing, parts and equipment for the plastic industry; to encourage the development of waste and scrap plastic processing industry

2.7.2 Gross output targets of plastic industry

Table 15 Gross output targets of plastic industry

181,577 billion dong8.65 billion USD

390,000 billion dong18.67 billion USD