[Raw Material Supercycle] Growing Burden on Manufacturing... Rising Pressure on Production Costs

Shipbuilding Industry Concerns Over Shipbuilding Steel Plate Price Impact
IT Industry "Supply Shortage Expected Depending on Demand"

[Image source=Reuters Yonhap News]

[Asia Economy Reporters Heungsun Kim, Hyunwoo Lee, Yoonjoo Hwang] Recently, as international raw material prices have surged, domestic and foreign manufacturers are increasingly burdened by rising production costs. Industry insiders and experts both domestically and abroad point out that if the liquidity released through economic stimulus measures causes excessive inflation amid an unclear economic recovery due to the aftermath of the novel coronavirus disease (COVID-19), consumption may shrink, ultimately harming the economic recovery.

According to Bloomberg News on the 26th (local time), speculative funds from international hedge funds pouring into the raw materials market over the three months from last September to last month reached approximately $120 billion (about 132.4 trillion KRW), marking the highest level since 2011. The report stated that large-scale liquidity released by various countries' economic stimulus measures has flooded into the raw materials market as an alternative investment to hedge against a weak dollar, driving raw material prices sharply upward.

Earlier, concerns about inflation due to the recent surge in raw material and asset prices were raised within the U.S. Federal Reserve (Fed). On the 12th, Esther George, President of the Federal Reserve Bank of Kansas City, said in a public speech, "The rapid rise in commodity prices such as raw materials and assets is appearing excessively," adding, "Although it is not yet at a level to directly affect monetary policy, inflation may approach the target faster than the Fed had anticipated."

In the domestic industrial sector, the sharp rise in raw material prices, along with the impact of rising production costs and inflation, is being closely monitored. The shipbuilding industry is concerned that the surge in iron ore prices may lead to an increase in shipbuilding steel plate prices. Last year, amid a renewed contraction in orders due to COVID-19, the shipbuilding and steel industries froze steel plate prices. As a result, blast furnace steelmakers reportedly incurred losses in the steel plate segment. The surge in iron ore prices is expected to be a major variable in the steel plate price negotiations for the first half of this year, which have recently begun.

The electronics industry is expressing concerns about raw material supply shortages. A semiconductor industry official said, "Memory semiconductor prices are set through long-term supply contracts with companies ranging from six months to a year, so there is no significant immediate price fluctuation, but after a few months, the current supply shortage situation will be reflected in prices." He added, "Since memory, foundry, and system semiconductors are all used in data centers and servers necessary to maintain untact (contactless) environments, if demand increases mainly from IT companies, supply shortages may continue."

The situation with automotive semiconductors, which have recently attracted attention due to supply shortages, is complex. This is because semiconductor companies do not supply parts directly but go through intermediate stages in production. Some express concerns that if primary semiconductor parts are not secured in time due to price surges and demand spikes, supply shortages may occur. However, automotive semiconductors occupy a smaller market share compared to mobile, PC, and data center semiconductors.

Domestic economic experts have expressed concerns that the rise in raw material prices driven by speculative demand could have a significant impact on the Korean economy, which relies heavily on imports for most raw materials. Professor Sedon Shin of the Department of Economics at Sookmyung Women's University said in a phone interview with Asia Economy, "I believe the recent surge in raw material prices is more influenced by liquidity and speculative demand than by expectations of economic recovery. Korea has reduced raw material imports over the past one to two years, utilizing inventory, but now that inventory is likely depleted. Imports must resume, and price increases inevitably become a burden."

This content was produced with the assistance of AI translation services.