Martial Arts: "If International Raw Material Prices Rise by 10%, Domestic Product Producer Prices Increase by 0.43%"

[Sejong=Asia Economy Reporter Kwon Haeyoung] It was found that if the import price of raw materials rises by 10%, the domestic producer price increases by 0.43%. This analysis suggests that since international raw material price fluctuations are highly correlated with domestic prices and our economy, the government and companies should strive to stabilize raw material supply and demand.

On the 30th, the Korea International Trade Association's International Trade and Commerce Research Institute stated in its report titled "Analysis of Factors Affecting International Raw Material Prices and Their Impact on Our Exports" that "Price fluctuations of international raw materials affect the prices of all products that use raw materials as intermediate goods."

Based on the input-output table of the Bank of Korea's industry interrelation table, it was estimated that if the import price of raw materials rises by 10%, the producer price of domestic products in 2018 increases by 0.43%. This is a 0.19 percentage point decrease compared to just after the financial crisis (0.62% increase in 2010).

The higher the proportion of imported raw materials input in an industry, the greater the price ripple effect caused by raw material price increases. In 2018, for non-ferrous metals with an import dependency of 55.7%, the domestic product price rose by 2.87% when the import price of raw materials increased by 10%. Steel, with an import dependency of 34.9%, rose by 1.77%, and petrochemicals, with an import dependency of 31.4%, increased by 1.48%.

International raw material price increases led to higher production costs for companies, increased export unit prices, and decreased export volumes. It is estimated that when raw material prices rise by 10%, export unit prices increase by 0.7%, and export volumes decrease by 0.25%. However, export value increased by 0.45% due to the rise in unit prices.

The main common factors of international raw material price fluctuations were analyzed as global economic conditions and risk asset preference. Global economic conditions explained 86.8% of the overall raw material price fluctuations, and risk asset preference explained 22.3%.

The Korea International Trade Association stated, "The negative impact of the continued rise in international raw material prices since the second half of last year on domestic prices and exports is not expected to be significant," but added, "However, small and medium-sized export companies are expected to face difficulties due to securing raw materials and price increases." It emphasized, "At the corporate level, measures such as cost reduction and development of high value-added products are needed to secure competitiveness, and at the government level, measures to ensure stable raw material supply without disruption are necessary."

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