Vietnam – Chemical Industry 2019

Vietnam's Chemical Industry Suffers from Slow Refinery Expansion

Published: 11 February 2019

1. Market development and trends

Chemical industry must expand capacity

Vietnam’s chemical market is currently below its potential. In theory, the government envisions this sector’s potential growth at 14-16% annually. However, the local industry is unlikely to meet these demands. According to the Vietnamese statistical office, the industrial sales index for chemicals and chemical products produced in Vietnam stagnated in 2017, although production increased by at least 8% that year.

Vietnam’s chemical industry is estimated to account for only 10% of the country’s total industrial production. According to the government’s development plan from 2013, the share is projected to reach 20% by 2020. Due to massive delays in the development of petrochemical infrastructure, Vietnam’s chemicals sector has too little capacity to produce necessary basic chemicals.

Customers increasingly pay attention to quality

Overall demand for chemical products is increasing. Continued dynamic construction activity and increasing industrialization are driving demand for high-quality chemicals. Agriculture, an essential part of Vietnam’s economic machinery, requires fertilizers and pesticides. The furniture, automotive and clothing industries are also expanding and in need of more and more high-quality chemical precursors, coatings and paints.

Hence, the country’s chemical industry is largely dependent on imports. In the first half of 2018, imported chemicals were worth US$ 2.5 billion, according to local customs figures. This was 25% more than in the same period in 2017.

Tariffs to protect local fertilizer production

According to the Ministry of Agriculture, Vietnam’s farmers consumed about 11 million tons of fertilizer in 2017, though Vietnamese fertilizer production covered only about 57% of domestic demand. Therefore, fertilizers worth US$1.2 million were imported in 2017. The most important supplier is the People’s Republic of China with an import share of almost 38%. Farmers heavily use pesticides and insecticides as well. Imports of pesticides recorded a massive growth of 35% in 2017.

In order to protect local fertilizer production, particularly against dominant imports from the People’s Republic of China, the government imposed anti-dumping tariffs on foreign diammonium phosphate (DAP) and monoammonium phosphate (MAP) fertilizer imports in March 2018. The tariffs are initially set to expire in March 2020. These safeguard measures are having a strong impact; according to company reports, DAP production, which is predominantly in the hands of the state-owned industrial conglomerate Vinachem, rose by almost 43% in the first half of 2018.

The use of agrochemicals is undergoing a timid reorientation. Over-fertilization not only leads to environmental damage, but the chemical contamination of locally produced vegetables and cultivated products also frequently exceeds international limits. Export-oriented agriculture in particular, which aims to supply the USA, Australia and Europe, must limit its use of fertilizers and pesticides. In addition, Vietnamese consumers, especially in cities, are becoming increasingly conscious of healthy food consumption.

Food companies switch to environmentally friendly fertilizers

Internationally oriented food manufacturers such as TH Milk Group already use more organic fertilizers and fewer or ecologically friendlier pesticides. Other food companies such as Masan and Vingroup ensure a seamless supply chain and commit their suppliers to use high-quality agricultural chemicals that meet international safety standards.

Use of organic fertilizers is on the rise, and these are increasingly produced domestically. According to local news reports, Vietnam’s production capacity was around 1.3 billion tons at the end of 2017. However, the term “organic fertilizer” is not protected or officially defined, so production quality varies greatly.

Even so, conventional inorganic fertilizers still comprise the largest market share. Farmers who produce for their own needs or for the local or regional market often have only rudimentary knowledge of the correct use of fertilizers and pesticides and work according to the principle of “more helps more”. The fact that buyers mainly consider price leads to the use of counterfeit or low-quality, often smuggled fertilizers.

Petrochemical industry is lagging behind

Vietnam’s petrochemical industry is suffering from long-term delays in important expansion projects, particularly the construction of its own refinery infrastructure.

The Nghi Son refinery, the country’s second refinery, started operations in November 2018 after receiving investments of US$9 billion. In addition to the Dung Quat refinery, it supplies the domestic market with petrochemical products. The new refinery has a capacity of 10 million tons of crude oil per year. According to the company, the plant can meet more than a third of domestic demand for refinery products such as polypropylene, paraxylene, benzene and sulphur.

Yet, this is not enough to meet Vietnam’s demand for basic chemicals. Other important major projects in the chemical and refinery infrastructure have fallen behind. For example, the investment license for the Vung Ro refinery project, which has been planned since 2018, was revoked in March. Negotiations on the amended license are underway, but the outcome is still uncertain. Thus, the start of production, originally scheduled for 2019, has been postponed indefinitely.

The expansion of the Dung Quat refinery will also start in 2023 at the earliest. However, construction work began on the Long Son petrochemical complex at the beginning of 2018 and is on track for commissioning in 2023.

Expanding plastics industry must import raw materials

About 2,000 companies process plastics into packaging, building materials and household goods, mainly in South Vietnam. The association Viet Nam Plastics forecasts growth rates of 14% to 16% in the coming years. This makes the plastics sector one of the nation’s most dynamic sectors. Raw and primary materials for plastics production are mainly obtained from abroad. The demand for intermediate products is estimated to reach 5 million tons by 2020.

Pharmaceutical industry increases sales

Pharmaceutical sales in Vietnam are growing strongly and, according to estimates from the market research firm GlobalData, are expected to reach US$6.6 billion by 2020. According to customs data, imports of pharmaceutical products rose by 10% in 2017 compared to the previous year. Around 160 companies in Vietnam produce pharmaceuticals certified to GMP standards (Good Manufacturing Practices). The required active ingredients and excipients must be imported in large quantities.

Market demands high-quality paints and varnishes

According to the Vietnam Paint and Printing Ink Association, sales of inks and coatings amounted to approximately US$1.6 billion in 2016. The Association estimates that sales increased slightly in 2017. Demand from the construction sector remains high in the face of flourishing construction activity. Difficult climatic conditions in Vietnam place special demands on inks and coatings. Particularly in the high-price segment and in high-end hotel construction, customers’ demands regarding paints are changing: quality, durability, safety and environmental compatibility of the products are gaining importance.

The expanding, export-oriented furniture industry also demands high-quality coatings and paints. Automotive production is picking up speed, especially with Vingroup’s automotive project Vinfast. Vietnamese and foreign car manufacturers are increasingly investing to expand their capacities.

The main suppliers of paints and varnishes are factories of foreign investors, including Four Oranges, Akzo Nobel, Juton, Kansai and Nippon. These companies have to buy the binders, pigments and other basic materials they need from foreign sources.

The footwear, bag and apparel industry is among the most important buyers of chemical materials. According to industry observers, textile chemicals are likely to face increasing demand in the future as factories make more investments for starting materials such as fabrics and yarn.

 

Vietnam: Selected investment projects in the chemical industry

Project (Company) Investment (in US$ million) Project status Comments
Long Son Petrochemical Complex (SCG Group from Thailand) 5,400 Investment permit 2008, start of construction February 2018, completion expected in 2023 Annual capacity 1.6 million tons of olefins; production of polyethylene, polypropylene, polyvinyl chloride
Vung Ro Petrochemical Complex (Technostar Management Limited) 4,000 Investment approval granted in 2008, withdrawn in 2018, negotiations underway Planned annual capacity of 8 million tons of crude oil; production of polypropylene, paraxylene and benzene
Dung Quat Oil Refinery 1,800 Expansion and modernization; completion of construction 2023 Expansion of annual capacity by 2 million tons of crude oil to 8.5 million tons
NPK Fertilizer Factory and import harbor (Petrovietnam Camau Fertilizer JSC) 32.4 Start of construction Q2 2017, completion Q2 2019 Annual capacity of 300,000 tons of fertilizer
Organic fertilizer production (Que Lam Group Vietnam) 12.3 Start of construction May 2018, completion 2019 Annual capacity of 100,000 tons of organic fertilizer
NPK Fertilizer Factory with water air technology (Agricultural Products and Materials JSC) Start of construction December 2017, completion 2019 Annual capacity of 50,000 tons of NPK fertilizer

Source: GMI research

 

2. Local industry structure

State enterprises dominate

Vietnam’s chemical industry accounts for about one tenth of the output of Vietnam’s manufacturing industry. Important sectors include the production of plastics, urea fertilizers, mixed fertilizers, pharmaceuticals and personal care products, as well as paints and varnishes. All sectors have to import raw materials and chemical precursors. Since existing and new refineries are mainly producing polypropylene, the demand for other precursors, such as polyethylene, will remain high in the future.

 

Vietnam: Production of selected chemical products (in thousands of tons)

Category 2017* 2016 Change 2016-17 (in %)
Crude oil 15,518 17,230 -9.9
Fertilizers and agricultural chemicals 7,034 6,617 6.3
Personal care products and detergents (tons) 1,303 1,276 2.1
Herbicides and insect repellents 154 146 5.5

*Estimates

Source: General Statistics Office

 

One of the important national players in the chemicals sector is the state-owned company Petrovietnam, which is particularly active in the oil and gas and downstream sectors. Petrovietnam is on the verge of restructuring and intends to divest shares in two of its fertilizer companies.

The Vinachem Group is the second-largest chemical conglomerate in the country. Vinachem has 41 subsidiaries active in all chemical sub-sectors. At the beginning of 2018, Vinachem proposed a privatization and diversification plan. According to the plan, the company would sell all or part of its shareholdings in some subsidiaries. The parent company would be transferred increasingly to private ownership. However, the plan will be slow to implement.

Large international chemical companies such as BASF, Bayer, AkzoNobel and DuPont are active in the country and either produce locally or are represented by sales companies.

 

Vietnam: Major chemical companies (selection)

Company Category Sales (in US$ millions, 2017) Website
BASF Construction Chemicals, Plastics, Petrochemicals, Agrochemicals, Others 328 https://www.basf.com/vn/en.html
Bridgestone Vietnam Co., Ltd Rubber http://www.bridgestone.com.vn
Duc Giang – Lao Cai Chemcial JSC Basic Chemicals, Fertilizers, Others 146.8 http://www.ducgiangchem.vn
4 Oranges Vietnam Co., Ltd Paints and Varnishes http://www.4oranges.com
Ha Bac Fertilizer and Chemicals JSC Fertilizers 32.6 http://www.damhabac.com
Lam Thao Fertilizers and Chemicals JSC Fertilizers and Basic Chemicals 176.5 http://www.supelamthao.vn
Petrovietnam Camau Fertilizer JSC Fertilizers, Petrochemicals 260.6 http://www.pvcfc.com.vn
Petrovietnam Drilling Mud Corporation Petrochemicals 165.1 http://www.pvdrilling.com.vn
Petrovietnam Fertilizer and Chemical Corporation Fertilizers, Petrochemicals 400.0 http://www.dpm.vn
Southern Basis Chemicals JSC Basic Chemicals 64.5 http://www.sochemvn.com
Tico JSC Basic Chemicals 82.0 http://www.ticovietnam.com
Viet Tri Chemical JSC Basic Chemicals 35.8 http://www.vitrichem.vn
Vietnam National Chemical Group (Vinachem) Fertilizers, Herbicides, Basic Chemicals, Rubber, Others http://www.vinachem.com.vn

Source: GMI research

 

3. General conditions for doing business

Import of chemicals is strictly regulated

Importation of chemical products to Vietnam can be tricky; the complexity of import regulations depends on the hazard level of the chemicals involved. According to Decree 113/2017, a total of 1,156 chemicals require a mandatory import declaration. Companies must register with the Vietnam National Single Window for this purpose (https://vnsw.gov.vn).

In addition, the Ministry of Industry and Trade (MOIT) and Vinachemia, a department of MOIT, are preparing a “National Chemical Inventory”. The third draft of the catalogue, submitted in September 2018, lists more than 30,000 chemicals recognized as known by the government. Substances not on this list are classified as unknown and must therefore be verified separately. The approval of chemical substances is handled by Vinachemia. All chemical ingredients must be labelled in Vietnamese. Vietnam has adopted the Globally Harmonized System of Classification and Labeling of Chemicals (GHS).

The National Chemical Database http://chemicaldata.gov.vn/cms.xc will be officially launched in January 2019. The database lists legal and administrative, as well as import and export, regulations for chemicals, sorted according to HS classification and is accessible by companies and authorities. The stored information is currently only available in Vietnamese.

In some market segments a Vietnam-based sales partner is indispensable. Specifically, the sale of pharmaceuticals is strictly regulated, and the approval of a drug by the Ministry of Health takes more than a year. Since 2009, foreign companies have been allowed to import drugs independently under strict conditions. Decree 54, which came into force on 1 July 2017, also gives foreign-invested companies expanded distribution powers. However, binding implementation guidelines are still lacking.

 

4. Contacts
Name Website
Vinachemia (Ministry of Industry and Trade; State Chemicals Agency) http://www.cuchoachat.gov.vn
Vietnam Paint and Printing Ink Association http://www.vpia.org.vn
Vietnam Plastics Association http://www.vpas.vn
Vietnam Pharmaceutical Companies Association http://vnpca.org.vn/en
Fertilizer Association of Vietnam http://www.vnfav.com
Vinachem Expo (from 27.11. to 30.11.2019 in Ho Chi Minh City) http://vinachemexpo.vietfair.vn