Slump in ruble to reach VN markets

August 31, 2015 | 07:17
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Russia’s currency, the ruble (RUB), has seen a significant slump in value over the past year.

Despite some recovery during the first half of the year, it has performed particularly badly over the past three months, and currently stands at 70.9 RUB to the USD (August 25), exceeding the poor performance recorded in late January this year. Compared to the beginning of the year, the depreciation of RUB has been 19.68 per cent versus the USD. From May 18, 2015, the RUB has depreciated 40.9 per cent. In the meantime, from the beginning of the year, other major currencies, such as the euro and yen, have depreciated 7.2 per cent and 0.4 per cent respectively.

Russia accounted for 0.8 per cent of Vietnam’s export turnover and 0.38 per cent of Vietnam’s import turnover in the first half of 2015. On May 29 this year, Vietnam signed a free trade agreement (FTA) with the Eurasian Economic Union (EAEC), a market with a population of 175 million and a GDP of over $2.5 trillion. Vietnam has had a bilateral trade surplus with EAEC. The majority of traded commodities are complementary, not competitive. The key imports include oil and petroleum, as well as iron and steel, while the key exports include agricultural products such as seafood and coffee and manufacturing products such as textiles, garments, footwear and wooden furniture. According to the FTA, Vietnam and the EAEC will open their markets, cutting 90 per cent of levies on 90 per cent of bilateral trade turnover. Vietnam will open its market for certain breeding products, machinery, and equipment, as well as transport vehicles.

We examine whether the slowdown in Russia and other EAEC countries will have a significant impact on the Vietnamese economy. There are some channels of transmission. First, the decline in income will reduce demand for Vietnamese commodities. Second, the depreciation of EAEC currencies relative to the VND will make Vietnamese goods more expensive, further lowering demand for Vietnam’s exports. More importantly, the depreciation of those currencies will create more pressure for China, Vietnam’s second biggest trading partner, and other Asian countries to devalue their currencies further. As a result, Vietnam’s trade balance may be negatively affected if it cannot rally in currency depreciation.

With regards to the stock market, a few sectors seem most likely to be affected by bilateral trade with Russia as the ruble declines. However, it must be noted that we do not expect the impacts to be drastically significant.

Fertiliser sector: Russia is the second largest fertiliser supplier for Vietnam, accounting for 14 per cent of total imported fertiliser value in the first half of this year, behind China with 45 per cent. Russia is the second largest potash (kali) producer in the world. At present, Vietnam must import all potash products and almost of them are imported from Russia. Because there are no potash producers in Vietnam, the depreciation in the Russian ruble will definitely benefit Vietnamese consumers and create no competition for fertiliser companies in Vietnam, such as Petrovietnam Ca Mau Fertiliser JSC (DCM) or Petrovietnam Fertiliser and Chemical Corporation (DPM).

Steel sector: The proportion of Russian steel imported into Vietnam is very low. Vietnam is not the targeted market for Russia’s steel industry. Since the ruble began falling in July 2014, according to statistics from VSA, there has not been any significant increase in steel imports from Russia.

Most Russian steel imported into Vietnam is of the types which Vietnam cannot produce and does not include construction steel (Hoa Phat Group’s (HPG) main product) or steel sheet (Hoa Sen Group’s (HSG) main product). We think that the ruble depreciation, along with the Eurasian Economic Union Agreement, would not significantly impact local steel producers. HPG has very small revenue from exports, therefore it will only be marginally impacted. As for HSG, we believe that their exports are mainly to Southeast Asia, although they do not disclose the exact breakdown. We don’t have data about HSG’s exports to Russia, but their export volume keeps increasing, so we can assume they have not been negatively impacted.

Seafood sector: The ruble depreciation has also not significantly affected the revenues of Vietnamese seafood companies because our exports to Russia are fairly small. The four main exporters to Russia are China, Chile, India, and Greenland. Vietnam’s pangasius exports to Russia dropped significantly when Vietnamese seafood products were banned in 2013, so this market is no longer in the top eight largest export markets of Vietnamese seafood exporters. According to Vietnam Association of Seafood Exporters and Producers, Russia occupies only 1 per cent of total Vietnamese seafood exports.

Hung Vuong Joint Stock Corporation (HVG): Due to the anti-dumping tax in the US and the Vietnamese pangasius import ban from Russia in 2014, Hung Vuong Group is moving to other potential export markets to mitigate these factors. In 2014, HVG exported 11,337 metric tonnes, with an export value of $19.7 million to Russia, equal to 9 per cent of total revenue, down 3 per cent from last year.

Vinh Hoan Corporation (VHC): Thanks to the zero anti-dumping tax in the US, exports to this market accounted for the largest portion, with 58 per cent of the revenue in 2014. The second largest export market was Europe, with 20 per cent of the revenue. VHC is not on Russia’s list of approved pangasius importers at present.

Angiang Fisheries Import Export JSC (AGF): The largest export market of AGF is the US. Russia and Eastern Europe distribute only 6.15 per cent of the total export revenue of AGF.

Sao Ta Foods Joint Stock Company (FMC): The main shrimp export markets of FMC are still Japan (56 per cent) and US (28 per cent). Since January 2015, these main export markets have declined, so the company moved to other major export markets such as Australia, South Korea, Taiwan, and Switzerland. Russia is not a potential export market of FMC.

International Development & Investment Corporation (IDI): Russia is not a seafood export market of IDI. The three largest export markets of IDI are China, Mexico, and Colombia, with an export value of $19 million, $16.4 million, and $14 million, respectively.

By VPBS

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