Wooden furniture manufacturers don’t fear order shortage, fear higher costs

Vietnam hopes to earn $4 billion this year from wooden furniture exports. However, producers are worried stiff because the input material prices keep increasing.

2011 is forecasted to be a busy year for wooden furniture producers as foreign partners have returned after the economic crisis and placed orders for 2011. A lot of enterprises said they have enough orders to bring jobs until the second quarter of the year.

Orders coming in rapid fire

The wooden furniture industry witnessed an impressive growth rate in 2010 with export turnover reaching $3.4 billion, an increase of 31 percent in comparison with 2009. Businesses say that though the number of orders is still far from reaching the level seen in the pre-crisis period, the export turnover was satisfactory. Meanwhile, more orders are still coming. Most enterprises say that they have enough orders to ensure jobs for workers until March, while some enterprises say they have enough jobs until August or September.

In January, Vietnam Timber & Forest Products Association (Viforest) forecasted that the total wooden furniture export turnover in 2011 would reach $4 billion, or 17 percent higher than in 2010.

Viforest has every reason to predict a high growth rate for 2011. The demand for wooden furniture products remains stably high in import markets. Meanwhile, the wooden furniture industry of China, of the biggest wooden furniture exporters in the world, is facing many hurdles due to the policy on the Chinese yuan revaluation, high labor costs, and a trend of developing production sectors with higher technologies. As the result, foreign wooden furniture importers are shifting their orders from China to Vietnam, according to Nguyen Ton Quyen, Viforest’s Secretary General.

Higher input material prices discouraging producers

As such, the biggest problem for producers is not a lack of orders, but the increasingly input material prices. Everything is getting more and more expensive, from timber materials to packages. The prices of the products have increased by at least 10-15 percent, and at max 50-60 percent.

The Truong Thanh Wood Corporation said it has orders that will account for 70 percent of the expected output in 2011. However, Ngo Thi Hong Thu, Deputy General Director of Truong Thanh said she is worried stiff about the input material prices which have been increasing steadily every week. “We have to fix the prices for six months or year, while the input material prices change every week. However, if we count on the estimated price increases in the quotations, we will lose the orders, because our prices will be higher than the prices offered by other enterprises,” she complained.

According to Thu, Truong Thanh now has to seek materials from many different suppliers. “The suppliers have quoted prices, however, if the material prices increase, they will be ready to break the contracts,” Thu said.

In principle, importing materials is a solution, but this is not the best solution for now when high lending interest rates make capital costs higher. Meanwhile, foreign partners require products with different designs, therefore, products need to be made from different materials.

Like Thu, Dien Quang Hiep, Director of Minh Phat 2 Company in Binh Duong province, complained that his company is facing a labor shortage and increases in the input material prices. In 2010, rubber wood, the main material for production, increased sharply due to the sharp rubber latex price increase of 50 percent in comparison with 2009.

Hiep related that at first, farms planned to chop down old rubber trees to get wood. However, since the latex price soared, farms decided to keep the trees to get more latex, thus leading to the rubber wood shortage.

Meanwhile the paints used for wood has increased by 15-20 percent over the last year.

Nguyen Chien Thang, Chair of the HCM City Fine Art and Wood Processing Association in HCM City has warned that wooden furniture enterprises may face profit decreases if they do not have the solutions to improve technology and increase productivity.

“The cost of labor is becoming more and more expensive, while input expenses have been increasing due to underdeveloped supporting industries. Meanwhile, the majority of enterprises still cannot control their material sources,” Thang said.


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