Raw Material and Logistics Crisis Causes Panic Among Manufacturing SMEs... "Government, Please Take Action"

April Production Index Falls for Two Consecutive Months... Average Operating Rate at 72.5%
Construction Industry Submits Petition to Government and National Assembly Demanding 'Comprehensive Emergency Government Measures'

Small and medium-sized manufacturing companies are struggling. Various adverse factors, such as the all-around raw material shock and logistics crisis that hit this year, have not been resolved easily. The photo shows a small and medium-sized manufacturing company that is not operating normally due to a shortage of raw materials. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kim Jong-hwa] A elevator manufacturer in Hwaseong, Gyeonggi Province, recently requested consulting services from a specialized consulting firm. As the company's situation worsened, they sought advice on halving the size of the business after discussions with employees. This is because the prices of raw materials such as steel, used in elevator manufacturing, have surged recently, causing losses with every product made. The company's CEO, Jeong Jong-san (52, pseudonym), said, "Order volumes have dropped to less than half, and material costs have risen too much. The cost per elevator has increased by 3 million to 5 million KRW, but instead of profits, we are incurring losses the more we produce." Jeong added, "Many companies lament that although they try to deliver the pre-contracted volumes, they don't know what to do because producing more only leads to losses."

The B Ready-mixed Concrete (Remicon) plant in Pyeongtaek, Gyeonggi Province, is facing severe management difficulties. Since early this year, cement prices have risen, and due to cement supply shortages before and after the Cargo Solidarity Union strike, the plant has not been able to operate properly, depleting its available funds. CEO Park Jong-bae (56, pseudonym) said, "We can't even pay employees' salaries, so how could we consider raising transportation fees for Remicon truck drivers?" He added, "We are looking for a buyer, but even that is not easy. Although we have overcome difficulties every year, this year it seems hard to endure."

Small and medium-sized manufacturing companies are struggling. Since last year, various adverse factors such as all-around raw material shocks and logistics crises have not been resolved, significantly shrinking the manufacturing industry.

According to the 'June 2022 Small and Medium Enterprise Business Outlook Survey' recently released by the Korea Federation of SMEs, the average operating rate of small and medium manufacturing companies in April was only 72.5%. The normal rate is 80%. Small enterprises recorded 68.7%, up 0.3 percentage points from the previous month, while medium enterprises stood at 76.1%, down 0.2 percentage points. The June Business Outlook Index (SBHI) also fell 1.5 points from the previous month to 86.1. Manufacturing dropped 1.7 points to 87.1, and non-manufacturing fell 1.4 points to 85.5.

The construction industry, hit hard by soaring prices of rebar, cement, and Remicon, submitted a petition to the government and National Assembly on the 18th, demanding a comprehensive emergency government response to the skyrocketing construction site material costs. According to the construction industry, the price of cement, a major construction material, rose 46.5% from an average of 62,000 KRW per ton last year to 90,800 KRW in April. Rebar prices surged 72.5%, from 690,000 KRW per ton last year to 1,190,000 KRW last month. Fuel costs, urea solution prices, and construction equipment rental fees have also increased significantly, further driving up construction costs, prompting calls for countermeasures.

Other industries are not faring any better. On the morning of the 21st, at the 'Agricultural and Food Manufacturing Committee' held at the Korea Federation of SMEs in Yeouido, Seoul, Jeong Jong-ho, chairman of the Korea Fermented Food Cooperative Federation, said, "98% of tofu manufacturers nationwide are small-scale businesses with fewer than five employees," and requested 'direct delivery of raw materials' from officials of the Ministry of Agriculture, Food and Rural Affairs present at the meeting. This was a call for stable grain supply measures and regulatory easing, including expanding direct delivery volumes, as difficulties in raw material supply increased due to soaring imported grain prices.

The Remicon industry is full of companies facing crises like B Remicon. They have reached their limits after consecutively facing the worst situations, including cement supply shortages, the Cargo Solidarity Union's collective transport refusal, and pressure from transport unions for collective transport refusal.

A Remicon industry official criticized, "The government, which should mediate conflicts and manage traffic, is failing to fulfill its role," adding, "Is there any value in a government that gives in to demands when they throw tantrums and encourages the industry to resolve conflicts through lawsuits rather than mediation?"

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