State-run Vietnam National Chemical Group’s (Vinachem) fertiliser subsidiaries have had difficulty in selling products due to oversupply, leading to continuous losses.
Another subsidiary of Vinachem, named Ha Bac Nitrogenous Fertiliser and Chemical Company Limited (Hanichemco), suffered huge losses worth VND700 billion ($31.3 million) in 2015 alone. The loss is considered more serious than Ninh Binh nitrogenous fertiliser plant’s loss of VND500 billion ($22.3 million).
The plant made a loss after the expanded plant, upgrading its capacity to 500,000 from the initial 180,000 tonnes per year, started operation in June 2015.
The golden age of urea nitrogenous fertiliser was in the 2011-2012 period, and the market was quickly saturated when a series of nitrogenous fertiliser plants came into operation. The most noteworthy contenders on the market are Ca Mau fertiliser plant with a capacity of 800,000 tonnes per year, Ninh Binh nitrogenous fertiliser plant with an annual capacity of 500,000 tonnes, and the expanded Ha Bac plant with an annual capacity of 500,000 tonnes.
According to experts in the fertiliser sector, the domestic demand for urea fertiliser is currently approximately two million tonnes per year, while the total supply amounts to 2.65 million tonnes, leading to an extremely out-of-balance the oversupply situation.
Along with the saturation, the domestic fertiliser manufacturing sector also needs to compete with imported products, especially low-price Chinese fertiliser which take up 49 per cent of the total imported fertiliser volume in Vietnam.
Furthermore, Vinachem’s fertiliser plants in general and the Ha Bac plant in particular have difficulties competing in price with other plants’ products, because most fertiliser plants are fuelled by gas, while Vinachem still uses coal. While gas fuel prices are on a continuous decrease, coal prices are immobile, leaving the Ha Bac plant unable to compete.
In late March, Ninh Binh nitrogenous fertiliser plant was forced to call a temporary halt to its operations by its continuous losses. The company temporarily laid off 400 of its 1,100 workers, paying the monthly unemployment allowance of VND3.1 million ($139.37) to each in order to convene them when the plant opens its gates again.
Vinachem has submitted 11 plans to deal with the above difficulties to the government and the Ministry of Industry and Trade, one of which is closing the plant.