Vietnam’s wood industry update

Vietnam has become a leading export country of wood and wood products in the world. The export value of wood and wood products from Vietnam increased in 2022 but it was much lower than businesses’ expectations in recent years. To compete with wood enterprises in other countries in the world, Vietnamese enterprises need technological innovations to reduce costs, utilize input materials and improve product quality.

Vietnam overview

As of April 2023, Vietnam has reached the population of 100 million people and has become the third most populous country in Southeast Asia and the 15^th in the world. The population structure of Vietnam is now 67.4% of the population is of working age. This is considered a favorable opportunity, creating a strong impetus for the economic development of the country.

According to the General Statistics Office, Vietnam's GDP reached USD 409 billion in 2022. Vietnam's GDP growth is expected to reach 6.3% in 2023. Nevertheless, domestic demand and exports are estimated to slow down in 2023. Vietnam's economic growth is expected to recover to 6.5% in 2024 as domestic inflation is likely to decline gradually from 2024 onwards by the rapid recovery of the main export markets (US, EU and China).

Wood industry overview

Vietnam has become a leading export country of wood and wood products in the world. On the international scale, Vietnam has been the 5^th biggest wood exporter in the world ranking, the 2^nd in Asia and the 1^st in Southeast Asia. Although Vietnam has become a leading export country of wood and wood products, Vietnam's wood furniture export turnover currently accounts for only 7% of the global market share. Given that the world's furniture trade market is large, with a total transaction value of about USD 405 billion per year, with an import demand for wood and wood products of about USD 230 billion, the room for the development of the wood processing industry is still very large, especially for furniture, which is a strong commodity of Vietnam. The export value of wood and wood products from Vietnam was USD 17.01 billion in 2022, up by 7.1% compared to 2021. However, this increase is much lower than businesses’ expectations in recent years, especially compared to 2021 when they increased by 19.8%.

The growth rates of different segments in the Vietnamese wood industry in 2022 varied. While the export of wood products and non-timber forest products was reduced in 2022, wood chips and wood pellets increased sharply. Particularly, the export value of wood products was USD 11.04 billion, down 0.3% compared to 2021, the export of non-timber forest products was USD 1.09 billion, down 6.1%; the export of wood chips was USD 2.78 billion, up 60.6% compared to 2021, the export of wood pellets was USD 0.82 billion, up 80.6%. The demand for wood products in the US and EU markets decreased as people tightened their spending in the context of inflation. Currently, the world's purchasing power for wood chips and wood pellets is growing very fast as the source materials, especially fuel fossils, are increasingly expensive and scarce. Wood pellets and wood chips are in greater demand. Nevertheless, they have been facing a very difficult situation in the recent months of 2023 when the export price has dropped sharply.

The enterprises’ manufacture and trade of wood in Vietnam are still not very positive as of the second quarter of 2023. According to a report published by Vietnam Timber and Forest Product Association, the capacity to use machinery in wood industry is lower than in other processing and manufacturing industries. Specifically, in the first quarter of 2023, the average capacity to use machinery and equipment by processing and manufacturing enterprises was 72.3%. The average capacity of using machinery and equipment for processing wood and manufacturing the products from timber, bamboo and cork (except for beds, cabinets, tables and chairs) was 64.8%. Similarly, the average capacity of using machinery and equipment for the production of beds, cabinets, tables and chairs was 65.3%. The low capacity of using machinery and equipment shows that enterprises had fewer purchase orders. It is forecasted that at the beginning of 2024, the market will be less difficult but the market will only recover until the end of 2024.  

While the export of wood and wood products to the traditional market (the five key main markets of Vietnamese products were the US, Japan, China, the EU and South Korea) decreased by 50-60%, the markets of India and the Middle East (e.g. UAE) become a bright spot in the export for the whole industry. India and countries in the Middle East are new export markets of Vietnam. The main export products to India are medium-density fibreboard and to the Middle East are wooded furniture.    

The EU market accounts for about 4-5% of the total export turnover of the wood industry of Vietnam. In the first four months of 2023, the export turnover of timber and wood products to the EU market decreased by two digits. The orders also dropped by 60% while new orders are very few even though it is now the EU commodity season. In fact, the EU import and export turnover continues to increase. The question is why Vietnam’s exports, including timber and wood products, dropped so sharply. Knowing that the EU is having a huge and diversified demand for wood products and furniture, its demand is several tens of billions of euros but Vietnam’s timber and wood furniture export to the EU market accounts for less than 1% of the EU market’s import demand. Vietnamese companies plan to increase export to the EU market. In order to do that, the authorities recommended Vietnamese enterprises to i) diversity their products, ii) scale-up output and sustainable source to ensure market stability, iii) build a promotion programme, iv) invest in technology to ensure the reduction of the product cost, diversification of models, and market standards.

To compete with wood enterprises in other countries in the world, Vietnamese enterprises need technological innovations to reduce costs, utilize input materials and improve product quality. Currently, Vietnamese enterprises are still weak in the processing of input materials such as wood drying, sawing, chemicals to avoid mouldy wood, etc.

The wood industry sector had a dialogue with the Prime Minister of Vietnam in April 2023. The dialogue has been organized annually since 2018 showing that the wood industry receives the great attention of the Vietnamese government. At the dialogue, the sector provided some recommendations and requests, which are also the demands of the sector: promoting trade by organizing major international fairs of the wood industry in Vietnam as well as participating in international fairs; and studying and promulgating public procurement policies, prioritizing the use of wooden furniture from planted forest products with certificates of sustainable forest management. No public procurement of wood products from natural forests or from risky geographical areas would be allowed. One of the recommendation is also promoting a consumption culture among Vietnamese people about green products derived from sustainably planted wood. The government also recommends supporting the development of wood- and wood-product-processing industrial parks, focusing on developing logistics services, and applying hi-tech zones in the wood industry sector in association with the development of the wood- and wood–product-processing industry. The recommendations further include steering local authorities to closely consider and appraise investment projects in the wood processing industry, giving priority to large-scale projects, deep product processing, modern equipment and technology; and minimizing the risk of importing wood from risky geographical areas, control the source of imported materials.

The supply risks of imported timber

In 2022, the total import value of wood and wood products in Vietnam was USD 3.03 billion, up by 3.4% compared to 2021. The import of wood as raw material was USD 2.62 billion, up by 9.6%, while wood products were USD 416.9 million, down by 23.5%. Five key main markets for importing wood and wood products to Vietnam were China, the US, France, Thailand and Chile. Sawn timber was the main imported product, accounting for nearly 40%. In terms of origin, the supply flows from low and high-risk countries accounted for a respective average of 65% and 35% of total imports to Vietnam. The import of sawn timber from low and high-risk countries makes Vietnamese finished wood products face challenges in the traceability of the origin of the wood material source. Additionally, Vietnam’s export has been affected by the import of Chinese furniture products, which is high-risk for anti-dumping and anti-circumvention duties as the result of trade remedies on Vietnamese wood products exported to the US market. Using domestically planted timber and imported timber from low-risk countries are tendency of Vietnamese enterprises when they want to export wood products to the US and EU markets.  

According to the statistics from Vietnam Customs Office, the import turnover of wood and wood products from Finland to Vietnam during the first 5 months of 2023 was USD 3.1 million, down by 71.4% compared to the first 5 months of 2022. However, with 90% of Finnish commercial forests with FSC or PEFC certificates, wood from Finland remains a potential supply flow for Vietnam.  

The geographic concentration of Vietnam’s wood-based industry

The four provinces with the biggest export value of wood and wood products in 2022 were Binh Duong, Dong Nai, Ho Chi Minh and Binh Dinh. The Binh Duong province has the biggest export value of wood and wood products of USD 5.59 billion, down by 2.6%, while Dong Nai was the second biggest with USD 1.87 billion, up 5.8%, Ho Chi Minh City of USD 1.75 billion, up 53%, and Binh Dinh was the fourth with USD 792 million, up 15% compared to 2021.

In 2022, Binh Duong was also the 1^st in ranking with regard to the import value of wood and wood products of USD 856.5 million. The 2^nd was Hanoi with USD 509.2 million and Ho Chi Minh city was the next one of USD 353.1 million. Nevertheless, Da Nang, Quang Tri, Hanoi and Hung Yen provinces increased the import value of wood and wood products remarkably in 2022 up 132.8%, 52.5%, 38.9% and 38.9%, respectively.  

Minister of Agriculture and Forestry of Finland visited Vietnam

In October 2022, the Minister of Agriculture and Forestry of Finland visited Vietnam. Accompanying him were Finnish companies in the forestry, food and water sectors. The Finnish forestry sector was promoted during the visit, specifically innovations on the use of wood as a material and Finnish solutions, multiple use approach and digitalization in forest management, as well as technological solutions and applied research to improve the productivity of the wood processing industry. Finnish technologies and solutions particularly on harvesting and timber processing, thermos-mechanical timber modification technology, and IT application were strongly promoted with the active participation of Finnish companies in events and activities of the visit.

Key opportunities for Finnish companies

The wood industry sector in Vietnam requires technologies and machinery to scale up production to ensure product stability, reduce production costs and meet market standards, although the growth rate in the sector in general was slowed down in 2022. The interests of Vietnamese enterprises now are more on the optimal use of domestically planted timber, which is the area for timber modification technology of Finnish companies. The thermos modification technology for instance can convert wood into as hard as hardwood without any chemicals. The domestically planted timber could replace hardwood from natural forests using this technology.

Finnish harvesting solutions have been promoted to Vietnamese enterprises throughout the years. There are needs and great interest among Vietnamese companies in the wood industry sector toward Finnish harvesting technology.

Although timber modification and harvesting solutions are key opportunities for Finnish companies in the Vietnam wood industry sector, however, Vietnamese enterprises are price-sensitive customers for Finnish technologies. Therefore, new approaches e.g. building partnerships with Vietnamese enterprises, are recommended. The partnership development could be in the form of marketing the Finnish product or could be in the form of showing the value-for-money of the Finnish product through its operation in Vietnam.

Vietnamese enterprises control more the source of imported materials with certified wood and the traceability of wood origin. These are opportunities for Finnish sawn wood to enter the Vietnam market.