Export Industry Voices Concerns Over 'Profitability Deterioration' Due to Soaring Raw Material Prices

Meeting Held to Review Impact of Raw Material Price Surge with 16 Industry Associations

On the 18th, at the Trade Tower in Samseong-dong, Seoul, Koo Ja-yeol, Chairman of the Korea International Trade Association, is speaking at the "Meeting to Review the Impact of Soaring Commodity Prices on the Trade Industry."

[Asia Economy Reporter Park Sun-mi] This year, as raw material prices continue to soar, our export companies are facing difficulties due to deteriorating profitability. There is a unanimous call for urgent government-wide measures.

On the 19th, the Korea International Trade Association (KITA) announced that it held a ‘Meeting to Review the Impact of Soaring Raw Material Prices on the Trade Industry’ at the Trade Tower in Samseong-dong, Seoul, the previous day, checking the rise in production costs and difficulties by major export sectors. Representatives from 16 domestic industry associations including semiconductors, petrochemicals, automobiles, and shipbuilding who attended the meeting agreed, “Due to the rapid rise in raw material prices, the export profitability of companies is deteriorating quickly, so urgent government-wide countermeasures are needed.”

The Korea Petroleum Association and the Korea Petrochemical Industry Association pointed out, “Due to the Russia-Ukraine conflict, the high oil price situation above $100 per barrel may be prolonged, so it is urgent to apply duty-free treatment to crude oil and bunker C (B-C) oil, which currently have a basic tariff of 3%.” They emphasized that major OECD countries already apply duty-free treatment and that the United States maintains a low tariff rate of 0.1~0.2%. The petrochemical industry noted that imports of Russian heavy naphtha have been completely halted, causing naphtha prices to rise by 30% compared to the beginning of the year, and that this year’s naphtha tariff quota amount is expected to reach 320 billion KRW, a 70% increase from last year.

Industries with high demand for metal materials such as shipbuilding, automobile parts, and general machinery also expressed concerns over rising raw material prices. The Korea Shipbuilders’ Association stated, “In April this year, the price of steel plates reached a record high of 1.4 million KRW per ton, significantly worsening the profitability of domestic shipyards. In particular, if the increase in steel plate prices is reflected in the construction loss reserves, the accounting operating loss amounts to a staggering 4.4 trillion KRW.” The automobile parts sector also reported that the price of magnesium, a lightweight material for vehicles, has risen sharply, but since China accounts for 90% of the global supply, diversifying supply sources is practically difficult.

The information and communication technology (IT) sector is not much different. The semiconductor industry depends on Russia and Ukraine for 30~50% of imports of rare gases such as neon used in semiconductor processes, and neon import prices surged by 156% in January and February this year. Although the semiconductor industry has secured sufficient short-term supplies, they pointed out that prices of alternative Chinese products have risen even more, leaving few options.

In addition to cost increases, red flags of various sizes are being detected in the supply chain due to the Russia-Ukraine conflict and China’s lockdown measures. The Korea Machine Industry Promotion Association mentioned, “Some companies pre-purchased parts and materials after receiving orders for excavators (45~120 tons) for export to Russia, but exports are currently blocked, making loss compensation urgent.” Machine tool companies operating in lockdown areas such as Shenzhen, China, are reportedly struggling not only with parts supply but also with inland transportation delays, which have led to a simultaneous decrease in sales volume.

KITA Chairman Koo Ja-yeol said, “Even now, our export companies are fighting a war of cost reduction, competing over every single won to enhance price competitiveness,” adding, “To wisely overcome inflation and supply chain crises, systematic supply chain management and sufficient inventory stockpiling are more important than anything else, and the government and private sector must open all possibilities and work together to pool wisdom.”

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