(HSV VIETNAM GROUP) – Increasing electricity prices will increase the cost of goods sold of manufacturing enterprises, especially industries that use a lot of electricity. If businesses cannot pass this on to consumers, rising electricity prices could erode some of their profits.
Vietnam Electricity Group (EVN) said it has decided to adjust the average retail electricity price by 4.5% from November 9. Accordingly, the average retail electricity price increased by more than 86.4168 VND/kWh, from 1,920.3732 VND/kWh to 2,006.79 VND/kWh, excluding value added tax. This is the second time electricity prices have increased this year, the previous time was in early May with a 3% increase.
An increase in retail electricity prices will generally significantly affect some manufacturing industries that use a lot of electricity such as cement, chemicals, metallurgy (steel), and paper. In a report assessing the impact of electricity price increases in May, Mirae Asset estimated that electricity costs accounted for about 9-10% of the cost of goods sold for steel manufacturing businesses, which is similar to businesses in the chemical industry.
The cement sector alone accounts for about 14-15% of the cost of goods sold, except for large enterprises with cement rotary kilns, where electricity costs account for about 9-10% of the cost of goods sold. For paper manufacturing businesses, it is estimated that electricity costs account for a lower proportion than some other industries, accounting for an average of 4-5% of sales costs and business management costs.
In fact, businesses can pass on increased electricity costs by increasing selling prices to consumers, thereby reducing the impact of increased input costs. However, if businesses cannot pass this on to consumers, rising electricity prices can erode a large part of profits.
On the other hand, Mirae Asset assesses that the increase in electricity prices has not had much impact on electricity production businesses in the short term because of long-term agreements when signing electricity purchase contracts with EVN. Typically, Pha Lai Thermal Power Plant, Quang Ninh... large projects sign contracts for 25 years, electricity purchase prices are negotiated through each stage.
Meanwhile, Mirae Asset believes that the increase in electricity prices could have a positive impact on electricity distribution businesses because long-term contracts were signed at low prices, but now they are sold at high prices, helping businesses profit more likely to increase.
In the long term, increased retail electricity prices and the development of a competitive electricity market will create more favorable conditions for businesses to increase electricity prices, reflecting the correct ratio of supply and demand in the electricity market.
Ha Diem HSV