Petroleum product prices plunge but enterprises still face difficulties

From the beginning of the year to the current date, the price of E5RON92 gasoline has reduced by VND 3,825/litre and RON95-III reduced by VND 4,178/ litre

Insignificant impact

On March 15, the Ministry of Industry and Trade and Ministry of Finance decided to sharply reduce the price of petroleum products. Specifically, price of E5RON92 gasoline decreased by VND 2,290/litre, RON95-III gasoline decreased by VND 2,315/litre, diesel 0.05S decreased by 1,750 VND/litre; kerosene reduced by VND 1,830/litre; mazut oil 180CST 3.5S decreased by VND 1,353/ kg.

The price of petroleum products on the market is not higher than the price: E5RON92 gasoline price is not higher than VND 16,056/litre, RON95-III gasoline price is not higher than VND16, 812/litre; diesel 0.05S price is not higher than VND 13,035/litre; kerosene price is not higher than VND 11.846/litre; mazut oil 180CST 3.5S price is not above VND 10,501/kg.

From the beginning of the year to now, this is the 5thconsecutive time the price of petroleum products has recorded the strongest plunge. The price of E5RON92 has decreased by VND 3,825/ litre and RON95-III gasoline decreased by VND 4,178/litre.

Talking with Customs Newspaper, Nguyen Duc Do Vice, Director of Institute of Economics and Finance (Academy of Finance), said from the beginning of the year until now, although the petrol price has decreased five consecutive times, the positive impact has been insignificant. Though through the decrease in petroleum product price, consumers, producing industries using gasoline and transportation have enjoyed benefits, the mining industry has suffered losses.

Regarding the impact on the consumer price index (CPI), Do said although the price of gasoline has decreased, the CPI is still high because of the high price of pork. The decrease in gasoline prices is not as strong an impact as pork prices because this product has a large proportion in the consumer "basket". Not to mention, pork prices may rise again in the near future.

Tran Duy Dong, Director of Domestic Market Department (under the Ministry of Industry and Trade), said the world petroleum supply is increasing rapidly, leading to the world petroleum price into price war. Oil demand has also dropped sharply. Typically, China lost 20-25% in oil demand which will push prices lower.

“The sharp decline in oil prices has provided benefits for people and partly for businesses producing and trading services. However, some petroleum enterprises face difficulties when consumption volume reaches only 40% compared to normal. The large amount of gasoline inventory previously imported at high prices is creating financial pressure on enterprises,” Dong said.

Dong added many petroleum enterprises want banks to support them via debt rescheduling because they suffered large losses. Therefore, price management must ensure common interests for consumers but it must also be calculated to ensure operations of enterprises.

Has petroleum product price hit bottom yet?

According to Customs Newspaper, many enterprises in Ho Chi Minh City said the reduction in petroleum product price will impact businesses in a positive direction. However, the impact in each area is different and will take time to assess.

"Transportation costs account for only a small part of production costs, so they will not significantly affect businesses," Phan Van Viet, Chairman of the Board, Viet Thang Jean Co., Ltd, Vice Chairman of the Ho Chi Minh City Textile and Garment -Embroidery Association said.

According to logictics businesses, petroleum product prices only account for 30-40% of the logicstics service supply chain, the rest are other costs, so price reduction also only partially affects this activity.

Vu Quang Thanh, Vice Chairman of Binh Duong Transport Association said when petroleum product price falls, the association recommends enterprises reduce costs but now enterprises are facing difficulties due to the Covid-19 pandemic, so they have not yet provided plans to reduce costs.

Nguyen Dinh Muoi, Deputy General Director of Vina T&T Import Export Service Trading Co., Ltd said “the company is specialised in transport and tourism business, the petroleum product price is an important part of business costs. However, due to the impact of the Covid-19 pandemic, the number of customers using the service has dropped sharply, so the reduction of petroleum product price does not solve many difficulties for the company.”

One current concern is whether the petroleum product price has hit the bottom or not? Responding to this question of Customs Newspaper,Do said that the reduction in petroleum product price does not hit the bottom because in the last petroleum price management period, the Petroleum Price Stabilisation Fund has been deducted.

"Currently inflation is more than 5%, I think in the first half of the year we should not deduct funds but focus on reducing price, when inflation is below 4% , we can further consider," Do said.