Vietnam: Some sectors to benefit, some to suffer from China’s reopening

VIETNAM, December 31 - HÀ NỘI — China has officially announced the easing of COVID-19 prevention measures which have been imposed for three years. This is expected to kickstart the country's economic recovery, opening opportunities for some Vietnamese sectors in the medium term.

In a recent report, Agribank Securities Company (Agriseco) said Vietnamese

businesses would benefit when China opens its doors and resumes flights between the two countries.

During China's shutdown, many businesses faced difficulties due to a shortage of raw materials, a sharp increase in input costs, and congestion of goods. However, freight rates cooling by more than 50 per cent since the beginning of 2022, goods circulating again, and the importation of raw materials not being delayed will help improve enterprises' production and trade activities.

According to Agriseco Research, business groups that can benefit include mechanical engineering, textiles, footwear, electronics, pangasius processing and automobiles. On the other hand, the prices of some input materials may increase again when demand recovers, such as iron and steel, cement, and base metals.

Industry group 'suffers'

In addition to the groups that benefit, Agriseco's report also shows disadvantaged groups. For example, experts recommend that investors follow China's output recovery in the fertiliser and chemical industry.

World urea prices dropped in mid-2022 but are still relatively high compared to the levels before COVID-19 pandemic. The fact that China has issued a ban on urea exports since March 2021 and Russia has applied export quotas with urea since July 2022, caused urea prices to increase sharply and stay at a high level.

Agriseco analysts point out that when China opens up its economy, it can restore production and remove export restrictions, causing fertiliser prices to continue to fall in 2023. China is the world's leading fertiliser exporter. However, the country's production cuts created opportunities for Vietnamese businesses to increase their exports strongly in the past two years. Businesses like PetroVietnam Fertiliser & Chemicals Corporation (DPM) and PetroVietnam Cà Mau Fertiliser JSC (DCM) have record growth in business results in 2022. These advantages may be lost if China restores production.

With the above assessment, Agriseco forecasts that the business results of fertiliser enterprises may go backwards in 2023 as fertiliser prices continue to cool down, and there may be a decline in export activities.

Similarly, in the past two years, enterprises of the chemical group have benefited from China's output cuts.

One of the main yellow phosphorus-producing regions in China is Yunnan province which implemented the “Energy Efficiency Management" Plan from September 22 to May 23. The efficiency and production of yellow phosphorus decreased sharply.

The report also pointed out that the full opening of China's economy will increase the country's demand for yellow phosphorus to serve manufacturing industries such as semiconductor chips and electronic components. If the policy of production cuts continues, the price of yellow phosphorus may continue to stay high. If China restores production, it may cause the price of yellow phosphorus to fall more significantly.

Agriseco Research believes that the business results of chemical enterprises will likely go backwards in 2023 due to the cooling of chemical prices and the restoration of production in China, making export activities more competitive. — VNS