87% of Large Corporations Hit by Raw Material Price Increases... Operating Profit Expected to Decline by 9.5% in Second Half

Survey on the Impact of Rising International Raw Material Prices on Companies

[Asia Economy Reporter Sunmi Park] A survey has revealed that the profitability of large corporations is expected to deteriorate significantly due to the continued surge in raw material import prices caused by rising international raw material prices and exchange rate increases (won depreciation).

On the 27th, the Federation of Korean Industries (FKI) commissioned market research firm Mono Research to investigate the ‘Impact of Rising International Raw Material Prices on Companies’ among large corporations engaged in 12 major export-oriented industries out of the top 500 companies by sales. The results showed that 87.0% of respondents said the rise in international raw material prices had a ‘negative impact’ on their business environment. Only 9.0% and 4.0% responded with ‘no impact’ and ‘positive impact,’ respectively.

During the first half of the year, the soaring international raw material prices caused the operating profits of large corporations to decrease by an average of 8.7%. Furthermore, if the rise in international raw material prices continues into the second half, the profitability of the majority of companies (93.1%) is expected to worsen, with an average operating profit decline of 9.5%. By major industry, the decreases were as follows: ▲Automobiles & Parts -11.8% ▲Petrochemicals & Products -11.6% ▲Biohealth -11.0% ▲General Machinery & Shipbuilding -7.0% ▲Electrical & Electronics -4.8% ▲Steel -4.4%.

Among companies that raised product prices due to the rise in international raw material prices in the first half, accounting for 49.0%, the proportion of companies planning to increase product prices if the raw material price rise continues in the second half rose to 63.0%. The remaining 37.0% of companies stated they have no plans to raise product prices. The average price increase planned by companies intending to raise prices is expected to be 9.6% of the manufacturing cost burden.

The reflection rate of manufacturing cost burdens in product prices by major industries in the second half is as follows: ▲Petrochemicals & Petroleum Products 13.6% ▲General Machinery & Shipbuilding 11.7% ▲Electrical & Electronics 8.1% ▲Biohealth 7.5% ▲Automobiles & Parts 7.2% ▲Steel 6.9%.

The FKI explained, “Companies that absorbed the burden of soaring raw material prices themselves in the first half are now facing profitability pressures due to the continued high international raw material prices, sharp exchange rate increases, and wage hikes, making it inevitable to reflect part of the cost burden in product prices in the second half.”

Regarding the duration of the continued high international raw material prices, about half (49.0%) of the respondent companies forecast it to last until next year (25.0% in the first half, 24.0% in the second half), while 23.0% expect it to last until the end of this year, and another 23.0% said it is ‘indefinite.’

As for government policy tasks to address the soaring international raw material prices, the survey showed the following priorities: reduction of raw material import tariffs 42.3%, securing stable raw material supply sources such as support for overseas resource development 36.3%, government release of raw material stockpiles 11.3%, support for recycling waste resources 5.3%, support for developing process technologies to reduce raw material usage 4.0%, and others 0.8%.

Choo Kwang-ho, head of the FKI Economic Headquarters, said, “Recently, domestic companies are experiencing decreased sales and worsening profitability amid the continued surge in raw material prices, high inflation, high interest rates, and high exchange rates,” adding, “It is necessary to reduce corporate cost burdens through measures such as lowering major raw material tariffs and corporate tax cuts, while actively pursuing measures to stabilize raw material supply, including overseas resource development.”

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