Rising Grain Prices... Will Ramen Prices Benefit from the Increase?

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Attention is focused on whether ramen stocks, which experienced poor first-quarter performance due to the sharp rise in grain prices since the second half of last year, can create upward momentum through price increases. As more people go out, ramen demand is expected to decrease compared to last year, but if price hikes materialize, stock price gains driven by improved profitability are anticipated.

According to the Korea Exchange on the 30th, Ottogi recorded 542,000 KRW on the 28th, down 6% from this year's closing high the previous day. Samyang Foods ended the day at 90,000 KRW, down 10%, and Nongshim fell by 0.1%. The poor performance was largely due to rising input costs for raw materials such as palm oil and wheat in the first quarter.

Since grain prices have not eased due to abnormal weather conditions in producing countries, poor performance of ramen companies is expected to continue into the second quarter and beyond. Among ramen raw materials, palm oil, which accounts for the largest share, recently hit a 13-year high. The futures price of palm oil has surged more than 20% this year alone. Wheat prices also reached an eight-year high last month. Securities firms already predict that Nongshim’s operating profit in the second quarter will be 20.9 billion KRW, a 50% decrease compared to a year ago. Ottogi and Samyang Foods are expected to shrink by 7% and 32%, respectively.

In this situation, the market expects ramen companies to raise prices to secure profitability. Kim Jeongseop, a researcher at Shin Young Securities, said, "Each company is emphasizing diversification of raw material sourcing, cost control through reduced promotions, and profitability defense through new product launches, but to prevent profitability deterioration, they will have no choice but to raise ramen prices. Domestic food companies hold about 2 to 3 months of raw material inventory, so considering the time lag, they will inevitably bear the burden of rising input costs from the second quarter." Currently, Nongshim and Samyang Foods have not raised prices since 2016 and 2017, respectively, and Ottogi has not increased prices since 2008 citing livelihood stabilization, so the time for price hikes has arrived.

Jo Mijin, a researcher at NH Investment & Securities, advised, "Since the domestic ramen market itself has stagnated in growth, the stock price rise momentum from price increases can be stronger compared to other food and beverage items. Concerns about poor performance due to rising raw material costs have already been reflected in stock prices, so it is worth aiming for a stock price rebound opportunity through price hikes."

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