'Increased Cost Burden' Clouds Ramen Industry Outlook for Q2

Main Ingredients Wheat and Palm Oil Prices Surge
Packaging and Other Material Costs Also Rise
Nongshim, Ottogi, Samyang Show Decreased Performance Compared to Q1
Calls for Additional Price Increases

[Asia Economy Reporter Eunmo Koo] The ramen industry, which started the first quarter of this year brightly with the effects of price increases, is expected to show a somewhat grim outlook in the second quarter due to increased raw material burdens such as rising international grain prices.

According to financial information company FnGuide on the 14th, Nongshim's expected operating profit for the second quarter of this year is estimated at 18.5 billion KRW, a 46.1% decrease compared to the previous quarter (34.3 billion KRW). Sales for the same period are also expected to shrink by 2.9% to 715.2 billion KRW.

Ottogi, the second largest in the industry, is also projected to see its second-quarter operating profit decrease by 28.6% to 42.1 billion KRW from 59 billion KRW in the first quarter, with sales expected to decline by 1.9% to 728.5 billion KRW. Samyang Foods is also expected to see a 16.3% decrease in operating profit to 20.5 billion KRW from 24.5 billion KRW in the previous quarter, and sales are forecasted to drop by 8.3% to 185.5 billion KRW.

The reason the ramen industry, which posted strong results in the first quarter, is not expected to maintain momentum into the second quarter is due to the visible increase in cost burdens. The prolonged war that began with Russia's invasion of Ukraine has continued to drive up international grain prices. Since the ramen industry must import key ingredients such as flour and palm oil, their concerns are deepening. Additionally, prices for packaging and other materials are also on the rise. Lee Kyung-shin, a researcher at Hi Investment & Securities, analyzed, "Recently, the burden of raw materials has expanded to an unprecedented level, making short-term profit expectations difficult despite high external growth rates."

Given the ongoing volatility of external factors, such as Russia not withdrawing from the Black Sea occupation, the ramen industry's raw material price burdens are expected to continue into the second half of the year. Shim Eun-joo, a researcher at Hana Securities, stated, "The recent combination of high exchange rates has increased short-term cost burdens," and added, "Considering the delayed timing of grain price inputs, cost burdens are expected to intensify until the end of the year."

In this situation, voices calling for additional price increases of ramen to defend profitability are emerging. Although the three major ramen companies raised prices simultaneously last year, the burden remains significant enough to offset those increases. Previously, Nongshim raised domestic ramen prices by an average of 6.8% last year and increased North American ramen prices by 5% in the fourth quarter. Ottogi raised domestic ramen prices by an average of 11.9%, including the first price increase of Jin Ramen in 13 years. Samyang Foods also raised prices by an average of 6.7%.

However, despite the increased cost burdens, exports and overseas sales are expected to continue growing. According to the Korea Customs Service, domestic ramen export value reached 315.94 million USD (approximately 411.1 billion KRW) as of May this year, an 18.9% increase compared to the same period last year (265.8 million USD). In particular, May's export value reached 76.66 million USD (approximately 99.7 billion KRW), setting a record high for monthly export amounts. Especially, Samyang Foods is evaluated to improve its sales capabilities and production efficiency centered on its overseas subsidiaries that began full-scale operations in the first quarter and the newly completed Miryang factory in the second quarter this year.

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