FKI "Over 70% of Companies to Turn Loss-Making if Oil Prices Surpass $150"

80.1% of Domestic Companies Say "Negative Impact Due to Oil Price Increase"
Consider Halting Operations at All Factories if Oil Price Reaches $200

[Asia Economy Reporter Park Sun-mi] Amid the ongoing $100 per barrel era of international oil prices due to the Russia-Ukraine conflict, companies expressed concerns that if oil prices exceed $150, they would turn to losses, and if prices surpass $200, they would have to halt factory operations.

On the 27th, the Federation of Korean Industries (FKI) commissioned market research firm Mono Research to survey the top 1,000 manufacturing companies by sales (151 companies responded) on the 'Impact of the surge in international oil prices on companies.' As a result, 80.1% of the responding companies said that rising oil prices negatively affect corporate management. Regarding how long the oil price increase will last, 84.8% expected it to continue within six months.

Companies reporting a deterioration in profitability (operating profit) due to rising oil prices accounted for 76.2% of all companies. Operating profit was found to decrease by an average of 5.2%. Companies experiencing a 5% to 0% decrease in operating profit accounted for 38.4%, while those with a 10% to 5% decrease accounted for 21.2%. Companies planning to reduce existing investment plans due to rising oil prices made up 76.2%, with the average reduction scale at about 2.7%. While 64.3% of companies planned to reduce investments within a 5% range, 21.8% of companies intended to increase investments within the same range.

Seventy point one percent of companies responded that they would turn to losses if oil prices exceed $150. The average oil price at which losses occur was calculated at $142. Companies that would turn to losses at the current level of $100 accounted for 13.2%. Notably, all companies responded that if oil prices rise above $200, they would consider halting factory operations. The average oil price at which factory shutdowns are considered is $184.

Companies responded that they would cope with rising oil prices through cost reduction outside of energy (32.8%), product price increases (24.3%), expanded use of alternative energy such as electricity (11.2%), and productivity improvements through new investments (10.7%). As for government support policies, the survey found that lowering crude oil tariffs (37.1%), securing stable energy supply sources such as support for overseas resource development (25.6%), government release of crude oil stockpiles (14.1%), and extension of fuel tax and liquefied natural gas (LNG) tariff reductions scheduled to end at the end of April (13.3%) are necessary.

Meanwhile, companies cited damages from the Russia-Ukraine conflict including crude oil supply and price increase damages (35.8%), petrochemical raw material (naphtha) supply and price increases (27.1%), and difficulties in payment transactions due to Russian financial sanctions (12.6%).

Yoo Hwan-ik, head of the Industry Division at FKI, advised, “If the recent rise in oil prices prolongs or surges above $150, significant damage is expected,” and added, “We hope the government will reduce tariffs on crude oil and LNG to ease corporate burdens and strive to secure energy stably.”

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