A Double Blow from Rising Raw Material Prices, Shipping Freight, and Exchange Rates... SMEs and Mid-sized Companies Hit Hard

World's Largest Aluminum Producer China Locks Down Factories Due to COVID... Inventory Down
Futures Prices Hit Highest in 13 Years
Shanghai Container Freight Index Also Reaches Record High Since 2009 Tracking

An employee is working at a small and medium-sized enterprise factory.
[Photo by Asia Economy DB]

[Asia Economy Reporters Kim Jong-hwa, Choi Dong-hyun, Kwak Min-jae] Kim Jin-seop (63), CEO of an aluminum pallet manufacturing company in Pyeongtaek, Gyeonggi Province, is currently facing great concerns. Over the past six months, the price of aluminum raw materials, which was 3,200 KRW per kilogram, has risen to 4,000 KRW. CEO Kim said, "Due to the continuous rise in raw material prices, we had to raise product prices, but sales dropped by half," adding, "We have 18 employees, and I am worried about paying their salaries."

Small and medium-sized enterprises (SMEs) and mid-sized companies are struggling with the 'triple hardship' of rising raw material prices, soaring maritime freight rates, and exchange rate increases. Aluminum product manufacturers have been hit particularly hard. As China, the world's largest producer, locked down its aluminum production areas due to COVID-19, production plants halted operations, causing aluminum inventories to dwindle and prices to soar. Recently, the London Metal Exchange (LME) aluminum 3-month futures price exceeded $3,200 per ton (approximately 3.8 million KRW), marking the highest price in 13 years.

Aluminum gift price trend.
[Graphic by Choi Gilsu, Asia Economy]

The price of aluminum ingots, the raw material for cast iron pots, surged by 80% last year alone. Consequently, the cost of aluminum, a key raw material for frying pans, increased by about 45%. With rising labor and transportation costs coupled with the sharp increase in raw material prices, frying pan manufacturers are facing deep concerns.

Hansol Paper and Moorim are also struggling due to rising pulp prices and soaring international maritime freight rates. Although they raised printing paper prices by 7% last month, it is still insufficient. The price of hardwood pulp (HWP) rose about 40%, from an average of $558 per ton in 2020 to $777 last year. The paper industry explains that logistics costs increased due to soaring maritime freight rates and additional expenses arose from exchange rate hikes.

To make matters worse, the KRW-USD exchange rate is adding to the burden. On the 15th, at 9:45 a.m. in the Seoul foreign exchange market, the KRW-USD exchange rate was 1,198 KRW, up 97 KRW from 1,101 KRW on the same day last year. The minimum import unit for pulp, which is paid in dollars, is 100,000 tons. For every $1 increase in pulp price, an additional 9.7 million KRW must be paid. The average pulp price was $660 per ton in January last year and $730 in January this year.

Shanghai Containerized Freight Index (SCFI) fluctuation trend.
[Graphic by Choi Gil-su, Asia Economy]

Logistics costs have also increased. As of the 7th of last month, the Shanghai Containerized Freight Index (SCFI) recorded 5,109.6, the highest since the SCFI began tracking in October 2009. As of the 11th, the SCFI stood at 4,980.93.

Hansol Paper's cumulative transportation costs for the third quarter of last year rose about 50% year-on-year to 135.8 billion KRW, while Moorim P&P's transportation and export expenses combined increased about 38% to 13.3 billion KRW (from 9.7 billion KRW the previous year) during the same period.

Experts say that since the rise in raw material prices and maritime freight rates are external factors unrelated to a company's fundamentals, active government support is necessary. Professor Kim Tae-gi of Dankook University's Department of Economics stated, "Even if a company's fundamentals are strong, external economic shocks such as rising raw material prices cause greater damage to the most vulnerable, small businesses," adding, "Small businesses that rely heavily on bank loans will also suffer from interest rate hikes."

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