Gas prices rise following refinery shutdown

A delivery man carries an LPG cylinder on a motorbike in Ho Chi Minh City

Retail prices for liquefied petroleum gas (LPG) in Vietnam have increased by about 4 percent after the country temporarily halted operation at the Dung Quat during an equipment check.

Ho Chi Minh City-based Saigon Petro said a 12-kilogram cylinder of LPG now costs VND343,000. The company said the shutdown at the country’s only oil refinery has led to a supply shortfall.

Do Trung Thanh, sales manager at Saigon Petro, said local distributors have had to import more fuel and, as a result, retail prices have gone up.

State-owned Vietnam Oil & Gas Group, also known as PetroVietnam, halted production at the Dung Quat refinery for an inspection early last week. The shutdown is expected to last up to three weeks.

LPG prices were raised 3 percent earlier this month, to VND330,000 per 12-kilogram cylinder, due to rising world prices.

Saigon Petro said local consumers should expect another hike, in April.

Source: Thanh Nien, Agencies 

Japan logs first trade deficit in almost two years

A freight ship docks alongside a container wharf in Tokyo port.

Japan posted its first trade deficit in almost two years last month, officials said Wednesday, amid rising commodity prices and weak demand for its exports ahead of China’s Lunar New Year holiday.

The finance ministry said exports, a key driver of Japan’s economy, rose just 1.4 percent in January — the 14th consecutive month of growth, but a well off the 13 percent on-year surge in December.

That came as instability in the Middle East and North Africa pushed the price of oil and other commodities up amid concerns supplies could be cut, sending resource-poor Japan’s import bill up 12.4 percent.

And analysts warned that with commodity prices looking set rise further Japan could see its cost of imports continue to grow.

The trade deficit for export-dependent Japan, which is struggling to revive its sagging economy, stood at 471.42 billion yen ($5.7 billion), compared with forecasts for a 49.6 billion yen surplus.

“Exports to China grew by only one percent in January, compared with 20.1 percent in December,” said a finance ministry official.

“Overall exports, mainly to China and other parts of Asia where people celebrate the Lunar New Year holiday, slowed because of shipping adjustments,” he said of the lead-up to the holiday in early February.

The economy, hit hard by the global downturn, is however broadly gathering steam as wider overseas demand remains strong, and officials predict the trade balance will swing back to black soon.

“The global economy has been recovering since late last year while a relatively lower yen is also helping Japanese exporters,” said Hiroshi Watanabe, economist at Daiwa Institute of Research.

Japan’s economy has been buffeted in recent months by a strong yen, which made exports more expensive and eroded companies’ repatriated profits.

However, it has eased off its 15-year high of 80.21 against the dollar struck in November and is currently sitting around the high 82 yen mark.

Japan reported last month its trade surplus more than doubled in 2010 and exports to key trade partner China had hit a record high, as robust overseas demand indicated gathering momentum for its recovery.

December’s 13 percent growth in exports, the second consecutive monthly acceleration, also showed the economy, highly reliant on auto, electronics and machinery exports, was starting to bounce back.

But Watanabe said the trade balance could be squeezed further in the coming months because of higher commodity prices, especially crude from the Middle East where Japan sources 90 percent of its oil.

“There are three main factors behind the surging commodity prices,” he said. “Emerging economies are expanding further. Speculative capital is also hiking prices due to monetary easing policies of the world’s major economies.

“Finally, the instability in the Middle East is pushing prices of oil and other resources higher.”

Prime Minister Naoto Kan Tuesday summoned his key ministers for an emergency meeting as oil soared to two-year highs amid escalating violence in Libya and instability elsewhere in North Africa and the Middle East.

Wednesday’s trade data showed Japan’s January imports at 5.44 trillion yen as the country was forced to pay more for iron ore and petroleum products as well as oil.

Exports were 4.97 trillion yen, modestly higher than a year earlier, thanks partly to demand for steel and construction machinery.

The Bank of Japan this week upgraded its view of the economy for the first time in nine months on accelerating global growth but kept its easy monetary policy in place due to persistent deflation.

Japan’s real gross domestic product slipped an annualised 1.1 percent in the December quarter as expiring auto subsidies hit car sales, a new tobacco tax sapped cigarette demand and a strong yen hurt exports.

But the contraction was smaller than expected, and there are hopes the economy will pick up this quarter on improving demand from key partners such as China, which overtook Japan in 2010 as the world’s second economy.

Source: AFP 

Higher rates hurting economy

The Hanoi-based Southeast Asia Commercial Joint Stock Bank (SeABank) on Thursday raised deposit interest rates to 18 percent early Wednesday before reduced them to 13.5 to 14 percent.

Interest rates in Vietnam have soared over the past few weeks after the central bank signaled tighter monetary policies to curb inflation and stabilize the foreign exchange market.

While raising interest rates can help contain inflation, very high rates can hurt the economy, Tran Hoang Ngan, a member of the National Monetary and Financial Policy Advisory Council, told Thanh Nien Weekly. A deposit rate of 12 percent is reasonable, as it is higher than the anticipated full-year inflation rate of 11 percent or so, ensuring that depositors can cover the higher prices of goods.

Thanh Nien Weekly: Each time the interest rates rise, several explanations are offered, such as stronger capital inflow into the stock market, higher inflation, and tightened monetary policies. What about the latest increases?

Tran Hoang Ngan: The higher interest rates are due to increasing inflation and exchange rates. To curb inflation and stabilize the exchange rate, the central bank increased the base rate, pushing up the interest rates in the banking market.

However, the (interest rate) hike should be seen as a short term phenomenon. The central bank should consider bringing them to a reasonable level. In theory, when inflation rises, countries will increase interest rates, but the increase must stand at levels firms can accept. This is where the central bank should come in.

The latest interest rate hike has hurt local production and business, so current levels should not be allowed to continue.

Some say that the capital mobilization capacity of commercial banks is still limited, and that this has contributed to the sharp rise. Would do you agree?

High interest rates are also due to the weak management of commercial banks. They increase the cost of credit for businesses.

Under the mechanism of free interest rates, we apply a policy of negotiable interest rates, which makes banks compete against each other to lure deposits through increased deposit rates.

The banking network has extended after some rural banks turned urban in 2006. Operating on a larger scale, the banks’ expenditures have increased, so they have to raise their interest rates as well. Besides, banks looking to strengthen lending operations increase deposit rates to increase their capital supply. Thus, their lending interest rates increase as does the risk they face.

In general, local banks’ business effectiveness is still low. The prices of banking stocks, which were high several years ago, are now very low. Some banks have seen their stocks falling below their face value. This shows that the banks’ use of capital has not been efficient or effective, and that it is necessary to restructure the banking system, merging weak banks with stronger ones and dissolving those without sufficient charter capital.

In the context of the economy always needing foreign capital, how is credit supply affected?

Our savings now are lower than investment requirements, so we need foreign capital sources. However, there is a problem with this as well. From foreign direct investment (FDI) projects, we expected technology transfer and a reduction in imports. However, after 20 years (of opening the market to FDI) we receive outdated technology, and the FDI sector sees a trade deficit.

Vietnam is one of the countries with the highest interest rates in the world. This will discourage investors and encourage people to deposit money in banks. So, prolonged high interest rates will destroy small firms in the country, causing a shortage of goods, and therefore, increasing inflation again. The central bank should intervene to keep interest rates at a reasonable level.

What do you think is reasonable?

It is the correct thing to do, to accept high interest rates to curb inflation, but not at extraordinary levels. So, keeping the deposit rates at 12 percent is reasonable, ensuring that it is higher than inflation. Our country’s full-year inflation is estimated at 11 percent, so a 12-percent deposit rate can help depositors cover the higher prices they pay for goods.

Inflation in Vietnam is caused by a number of factors not decided by money supply. Some countries have an interest rate policy based on base inflation in which non-monetary factors are not calculated.

For example, prices of crude oil and food in the market are not increasing because of higher money circulation in Vietnam, but because of world supply and demand.

So it is necessary to pay attention to this issue. Interest rate adjustments should be based on the base inflation rate, not the general inflation index (or headline inflation rate that has a larger basket of goods and services).

The latter is a measure of living standards that can be used to adjust wages, but the base inflation rate should come into play in formulating interest rate policies.

Reported by Ngan Anh 

Vietnam says will fight inflation, prices aren’t under control

Vietnam will focus on fighting inflation in 2011 as the prices of some goods in the country aren’t yet under control and growth has created risks to macroeconomic stability, the government said.

Inflation accelerated to 11.09 percent in November, the fastest pace since March 2009. Economic growth for 2010 may reach 6.7 percent and accelerate to as much as 7.5 percent next year, the government said in a report released Tuesday at a conference in Hanoi.

“Prices of specific products, including milk and medicine, have yet to come under adequate control,” the government said. Vietnam’s economic growth “has generated new difficulties to macroeconomic stability,” according to the report.

Vietnam needs a “coherent package” of measures including higher interest rates to re-establish its monetary policy credibility and slow inflation, the International Monetary Fund said Tuesday.

The central bank said in a statement prepared for the conference it plans to prioritize macroeconomic stability and inflation control next year.

“The government is on the horns of a dilemma,” Australia’s Ambassador to Vietnam, Allaster Cox, told reporters at the conference.

“You’ve got the short-term needs for growth and employment generation, which are urgent to maintain social stability, and yet at the same time you’ve got to try and drive competitiveness and improve the economic engine to generate more efficiency to reduce the overheating.”

Credit may grow 25 percent to 27 percent this year, central bank Governor Nguyen Van Giau said in the State Bank of Vietnam’s statement.

‘Too high’

Lending growth of even 25 percent “is too high,” according to Masato Miyazaki, the IMF’s division chief for the Asia and Pacific department, who also said in remarks prepared for the meeting that the Vietnamese government’s actions often give an “impression” that it favors short-term growth “despite official statements to the contrary.”

Recent economic growth has been fueled by a rapid expansion in fiscal policy and credit, the United Nations said in remarks prepared for the meeting.

Vietnam faces an “increasingly deteriorating macroeconomic outlook,” the UN said, citing inflation, a current-account deficit and a weakening currency. “This is slowly eroding the public’s confidence and that of international investors and global capital markets.”

The implementation of “ad-hoc and trade-restrictive measures” to fight inflation such as price registration and import-licensing systems are unlikely to be sustainable and will contribute to hoarding, according to a joint Australian-Asian Development Bank statement to the meeting.

Source: Bloomberg 

Vietnam official rejects WTO violation accusation

Milk prices in Vietnam are much higher than neighboring countries, but foreign companies are crying foul at stabilization measures.

Vietnam does not violate its World Trade Organization commitments in taking measures to keep prices stable, Deputy Finance Minister Tran Xuan Ha has said.

He said it was necessary to issue Circular 122, which allows local authorities to impose stabilization measures when a company abuses its monopolistic position or when prices rise faster than production costs.

After the circular was issued in August, the Ministry of Finance also named 150 companies that had to register their prices with the authorities, including major foreign-owned dairy firms.

Ha said the goal of these measures was to protect both local consumers and the reputation of producers. He said the ministry welcomes any feedback from businesses concerning the circular.

The deputy minister’s comment was made during the Vietnam Business Forum in Hanoi on Thursday where foreign business leaders accused Vietnam of violating its WTO commitments with the price control measures.

They said the price registration regulation seems to be aimed at foreign companies and that this discrimination was a WTO violation.

“We believe that price controls do not work and are counterproductive to future growth,” Hank Tomlinson, chairman of the American Chamber of Commerce (AmCham), told the Vietnam Business Forum.

“We are also concerned that implementation of the new law has focused primarily on imports by foreign companies – a clear violation of the letter and spirit of Vietnam’s WTO commitments.”

This was not the first time there have been complaints about Vietnam’s price control efforts.

In September, foreign firms and the ambassadors of Australia, Canada, New Zealand, the US and the EU had raised concerns about the plan to have dairy producers disclose their production costs.

They said it would affect Vietnam’s commitments as a WTO member and warned that it could also hinder foreign investment.

According to a study conducted by the Ministry of Industry and Trade’s consumer protection agency prior to Circular 122, dairy prices in Vietnam were 2-3 times higher than those in regional countries.

A number of foreign companies have been accused by consumers and other market watchdogs of taking advantage of legal loopholes to foist high prices on Vietnamese consumers. 

Reported by Mai Ha (with input from AFP) 

Consumers have it good as electronics prices crash

Robert Vu, marketing director of Samsung Vietnam Electronics Company, says the prices of LCD TVs in Vietnam are 15-20 percent lower than in other countries in the region

The global economic slump has forced producers and distributors of electrical and electronic goods to cut prices, offering consumers a windfall.

But belt-tightening potential buyers have been buying less and less, retailers said, adding the little they buy has been in the low-priced segment.

Since the beginning of this month, retailers in Ho Chi Minh City and Hanoi have joined hands with producers to cut prices by 10-40 percent.

Liquid crystal display (LCD) and Plasma television sets, just two years ago a luxury product, have now come within the reach of many. The prices of the most popular 32-inch LCD TVs are now between VND6.9 million (US$406) and 7.9 million ($465).

Robert Vu, marketing director of  Samsung Vietnam Electronics Company, said the LCD TV prices in Vietnam are 15-20 percent lower than in other regional countries.

Digital cameras, recorders, refrigerators and washing machines have also become 10 percent cheaper since last month.

Vu said the price cut is partly due to the rapid technological evolution, which quickly makes products outdated.

But Mai Duy Bao, marketing director at Philips Vietnam, said the main reason for the falling prices is the pressure on revenues.

“Firms are under pressure to achieve the year’s revenue targets,” he said.

Newswire VietnamNet said in a report last week that some producers and importers of LCD TVs substantially increased their stocks this year based on the good sales last year.

But with inflation taking a toll this year, sales have halved, leaving huge stocks unsold and producers with no choice but to slash prices.

Retailers have helped slash prices by cutting expenses on advertising and marketing.

“Producers and retailers have cut costs as much as possible and have had to forgo profits to keep customers,” Nguyen Minh Thu, marketing and trade director of Thien Hoa retail chain, said.

The VietnamNet report quoted Ngo Thanh Dat, marketing director of the Hanoi-based Pico Plaza retailing center, as saying prices would go down even further from next month as retailers launch intensive promotion campaigns for Tet.

Dat expected the campaigns to focus on price cuts rather than offer gifts or raffle tickets to attract customers.

But for the moment sales remain sluggish, retailers said. Hoang Ngoc Vy, director of Vien Thong A mobile phone chain, said her company’s sales have halved this year.

Besides their fear of continuing inflation and the risk of economic slowdown, many consumers are also expecting prices to fall further, Bui Minh Thu of Gia Thanh retailing center in HCMC said.

Under Vietnam’s commitments to the World Trade Organization, it is set to cut import duties substantially on electrical, electronic, telecom and information technology products in the new year.

Three million or less

In a report last month, market research firm GfK Vietnam revised its forecast of consumer durable sales this year to $3.9 billion, down from its June forecast of $4.07 billion.

Tran Khoa Van, GfK’s country manager, said high inflation has hit purchasing power as consumers grapple with the high costs of food, clothes, travel and entertainment.

Retailers said the last quarter is set to see mostly sales of low-cost electrical and electronic goods.

Most customers buy low-cost cathode-ray-tube TVs, washing machines, fans and irons, a salesperson at Cho Lon supermarket in District 5 said.

Major retailers said goods priced at under VND3 million accounted for up to 75 percent of total sales.

Source: TN, Agencies

High tour prices put off foreign visitors

Tourists visiting Ngoc Hoang Pagoda in Ho Chi Minh City’s District 1

The local tourism sector has been hit hard by the economic downturn as foreign tourists tighten their belts, tour operators said.

Ly Tat Vinh, head of Cholontourist Company’s development research division, said European tourists often planned trips a long time in advance and tended to book tours and hotels at least six months ahead.

At the time when they considered visiting Vietnam, tour package prices offered by local travel agencies were surging, due to high hotel and restaurant prices, he said.

As a result, they might have chosen other countries to visit, he said.

Meanwhile, the number of customers canceling trips had increased recently since the global financial crisis unfolded, Vinh told Thanh Nien.

TransViet Travel Company estimated the number of its foreign customers this year would fall by 40 to 50 percent compared to 2007, with the biggest drop occurring among Asian tourists.

Vu Duy Vu, deputy general director of Saigontourist Company, said he expected a 20-to-30 percent drop in the number of its foreign customers next year. According to the company, its customer base comprises mainly well-off tourists from the US and Europe.

Foreign tourists have also started forgoing luxury services to save money.

Huyen Thanh, director of Wildlotus Adventures Company, said many tourists didn’t want to stay in five-star hotels anymore, choosing lower-ranked hotels instead.

“The economic recession has forced foreign tourists to cut their spending and the difficult situation can last until the end of 2009,” VnExpress newswire quoted Hanoi’s Melia Hotel spokesperson Dao Viet Nga as saying.

Some regular customers of Melia Hotel in Hanoi have switched to less expensive hotels, Nga said.

Statistics released by CB Richard Ellis Vietnam showed that the occupancy rate of some five-star hotels in Ho Chi Minh City in the third quarter this year was approximately 61 percent, a decrease of about 16 percent compared to the same period of 2007.

A little too late

Seeing tour operators make less bookings, some four- and five-star hotels began lowering prices a few months ago.

But it was a little too late because local travel agencies’ foreign partners had already advertised tours for 2009 to the US and Europe markets by then.

Saigontourist’s Vu said travel agencies had to try their best to keep their tour package prices as low as possible, which also meant they sometimes had to accept losses.

Most agencies said they will not launch new tours at the end of this year, usually the tourist high season in Vietnam. Instead, they will focus on promoting low-priced and short term tours, for example, to Da Lat or Nha Trang.

He said the biggest problem that local travel agencies faced was setting tour prices because of rise and fall of air fares, hotel prices and domestic transport costs.

Huyen Thanh said tour operators couldn’t offer customers the best prices because they have to include a margin to allow for sudden price hikes in related services.

If hotels and airlines only lowered their prices for a short period, all the efforts of travel agencies to develop the tourism industry will be in vain, Vu said.

An official of the Vietnam National Administration of Tourism (VNAT), who did not wish to be named, said there was currently no cooperation between tourism businesses on prices.

The official said the time was right for them to “sit together and cooperate” to benefit their own businesses, the sector and the country.

Nguyen Manh Cuong, deputy head of VNAT, said the global economic crisis had affected the tourism sector, so the target of receiving 4.8 million-5 million foreign tourists this year may not be reached.

Cuong said he expected only 4.3 million-4.35 million foreign visitors, or a 3.5-4 percent increase on last year. In 2007, the number of foreign tourists visiting Vietnam was 16 percent higher than the previous year.

“Product quality is the biggest problem of Vietnam’s tourism and many tourists have complained that we don’t have a wide range of products,” Cuong said, noting a plan to reform the sector had been created and would be implemented at the beginning of next year.

Vietnam’s tourism industry pulls in revenues of US$3 billion a year. The country targets about 6 million tourists and $4-4.5 billion revenue by 2010, according to VNAT.

TOURISM PROMOTION The Ministry of Culture, Sports and Tourism plans to advertise images of Vietnam internationally to promote tourism. According to a proposal plan by the UK’s BBCWorld TV channel, images of the country will be broadcast in the Asia-Pacific, North America and Europe regions for about 14 weeks. Vietnam also plans to promote tourism on other networks, including South Korea’s KBS and CNNof the US. But Huyen Thanh, director of Wildlotus Adventures Company, said such a promotion campaign needed to be accompanied by a suitable business strategy that offered discounts to foreign tourists. Vietnam is advertised as an attractive destination but tourists will not be interested in visiting if tour prices are still too high, she said. Earlier this year, the government granted VND30 billion ($1.78 million) to the Ministry of Culture, Sports and Tourism for tourism advertising.

Source: TN, Agencies

Gasoline prices cut as oil slips

The Hanoi-based Vietnam National Petroleum, or Petrolimex, which supplies 70 percent of the country’s retail gasoline, has cut prices for the third time since August in response to falling global prices.

It cut the prices of 92-octane gasoline, the most commonly used grade in the country, and 95-octane gasoline by VND500 a liter to VND16,500 and VND17,000 respectively.

The reduction, effective from today, “is in response to the government’s call to retailers to reduce local fuel costs amid the recent drop in world oil prices,” Vuong Thai Dung, Petrolimex deputy chief executive officer told Bloomberg Tuesday.

Crude oil has tumbled almost 38 percent from its July 11 record of US$147.27 a barrel amid a deepening global credit crisis.

But Petrolimex left diesel prices unchanged. Last month, the cost of diesel type 0.25S and 0.05S fell by VND450 per liter to VND15,450 and VND15,500.

But oil companies are sitting on cumulative losses of VND3 trillion ($180.7 million) caused by the government’s efforts to combat inflation by cutting gasoline prices. In an effort to improve their liquidity, the Ministry of Finance announced Monday it would lend the oil companies money.

A month after getting the loans, they can start repaying by drawing VND1,000 per liter from pretax profits, the ministry said.

In August, the government had slashed retail prices by VND2,000 within a span of two weeks.

Vietnam is Asia’s second-largest importer of petrol and diesel after Indonesia. The country, while exporting crude oil, has to import refined oil products because it lacks refineries.

The $2.5 billion Dung Quat refinery, its first, is scheduled to begin operations in February next year with an annual capacity of 6.5 million tons.

Reported by Thanh Nien staff