Vietnam will, next year, float prices of cement, steel and fertilizers, allowing market forces to drive the ultimate price, local newspaper Vietnam News on Friday quoted a finance official as saying.

In addition to floating the prices, Vietnam will cease subsidizing petrol prices, and reduce subsidies on oil next year, Nguyen Tien Thoa, deputy director of the Price Management Department under the country's Finance Ministry, said, noting that coal used for generating electricity will continue to be subsidized.

The Vietnamese government currently retains the right to set prices for electricity and petroleum. It also requires the coal industry to negotiate prices with the electricity, cement, fertilizer and paper industries, the four sectors that most heavily rely on coal and which together consume the lion's share of coal output in Vietnam.

The pricing mechanisms would not be banned by the World Trade Organization (WTO)'s rules, Thoa said.

"However, the WTO requires Vietnam to adjust other pricing mechanisms to ensure that the economy operates according to market laws, without trade-distorting measures," he said.

Under a recent government decision, electricity charges will rise 7.6 percent on Jan. 1, 2007, with an additional hike planned for January 2008. By 2010, the price of electricity will be determined by market forces.

The January increase in electricity charges was expected by experts to directly drive up consumer price index by 0.25 percent, and production cost of some industries by 1 percent in 2007.

According to the Vietnam Pulp and Paper Association, the cost of producing paper would rise 6.5-8 percent due to the higher cost of electricity. However, packaging paper would not be heavily affected due to more stable prices of both imported and recycled materials.

The state-owned Vietnam Coal and Mineral Industries Group ( Vinacomin) said coal prices would increase 20 percent in 2007, a surge that will affect production cost of other industrial products such as paper, fertilizer and steel. Vinacomin said coal prices would be raised gradually so that they could be floated to market forces at the end of next year.

As coal comprises 25-45 percent of input costs for fertilizer production, fertilizer prices would go up at least 3 percent next year, according to the state-owned Vietnam Chemical Corporation. Only urea would not be immediately affected.

The domestic steel industry also planned to roll out an increase of 0.6-1 percent in prices of steel products, subject to the expected hike in electricity and coal prices in 2007. Steel prices were not expected to jump wildly as local producers still face competition from imports of cheaper Chinese steel, said the report.

Source: Xinhua