Material importers feel pinch of dong devaluation
Material importers feel pinch of dong devaluation
The central bank’s devaluation of the Vietnam dong currency by another 1% against the U.S. dollar and its widening of the dong/dollar trading band to 3% on August 19 will deliver a blow to material importers.
Commodity prices inch up
Since the State Bank of Vietnam (SBV) widened the dong trading band on August 12, auto assemblers and importers have not made any specific price moves. Truong Hai Auto (Thaco), Toyota Vietnam and Euro Auto (BMW) said they had not revised up selling prices over the past week.
Nevertheless, a source told the Daily it was likely that automakers would adjust car prices in the coming days after the SBV devalued the dong on the inter-bank market by 1% and increased the trading band from 2% to 3% on either side.
Not only auto importers but also joint ventures would consider revising up selling prices as a large proportion of auto parts for domestic assembly were imported, the source said.
According to the source, auto prices might edge up 2-3% as the Vietnam dong weakened by 2.54% against the U.S. dollar and 2.7% against the euro.
However, Euro Auto, the official importer and distributor of BMW and MINI autos, might not change prices.
An expert said though the Vietnam dong had slid by 2.7% against the euro in the past week, it has risen 6.12% against the euro this year. Therefore, if firms import cars from Europe, they may not hike prices.
Regarding fruit imports, an importer based in HCMC said the new exchange rate had yet to affect import prices as his company was still getting fruits as part of their previous orders. However, with new orders in the next 10-15 days, import prices will likely pick up 5-10% if they are calculated in the local currency.
Meanwhile, Luu Son Thuy, a board member of Ket Phat Thinh Co. in Long An Province, said the company has suspended beef imports from Australia due to the strengthening U.S. dollar and higher import prices of Australian cows.
“We initially planned to resume beef imports from Australia at the end of the seventh month and early in the eighth month of the lunar calendar. But we are now undecided due to exchange rate volatility,” Thuy said.
Le Thi Thanh Lam, deputy general director of Saigon Food, said the revised exchanged rate would definitely affect import prices of food ingredients and products as the volume Saigon Food imports every month is large.
Pham Hong Hai, chief executive officer of HSBC Vietnam, said the SBV’s move on August 19 would have an impact on Vietnamese importers as costs may rise and import volume may inch down.
Higher pressure on dollar borrowers
According to the analysis unit at Maybank Kim Eng, the devaluation of the dong will surely benefit exporters, reduce trade deficit risks and help stabilize the forex market.
However, companies with large loans in U.S. dollar such as Vietnam Ocean Shipping Joint Stock Company (coded VOS), Vinaship Joint Stock Company (VNA), and PetroVietnam Transportation Corporation (PVT) could be affected.
Some companies borrowing foreign currency loans and generating revenues in foreign currencies might be unhurt like PetroVietnam Drilling and Well Service Corporation (PVD).
According to Maybank Kim Eng, new foreign exchange market developments will make life hard for shipping companies as their loans in foreign currencies, mostly the U.S. dollar, are huge. The average debt-to-equity ratio at those companies is 0.87 and even 3.7 at one company.
Firms advised to stay firm
Hai of HSBC Vietnam said the SBV had created a trading range wide enough to satisfy forex supply and demand.
The SBV’s move helps reduce the pressure of selling dollars to the market, Hai said.
Hai noted that in case of market fluctuations, enterprises should not rush to buy U.S. dollars at all costs because this reaction would lead to more volatility.
The market would normally adjust and stabilize around a new rate after volatility occurs, Hai said, adding businesses should have some FX hedging tools.
In a statement released on August 19, ANZ said the SBV’s move on August 19 created room for the Vietnam dong to be weaker and eased pressure on the SBV’s intervention.
Nonetheless, according to ANZ, it takes time to know if such room is enough for the remaining months of the year and the SBV might take more measures, especially when the yuan might be further depreciated.
The SBV’s decision to adjust the exchange rate and widen the dollar/dong trading bank is an appropriate move to reduce the impact of the yuan devaluation on Vietnam. However, Maybank Kim Eng said risks concerning the exchange rate would depend greatly on what China does next.
