[Exchange Rate 1400 Won] Raw Material Cost Burden 'Snowballing'... Home Appliance Industry 'Alarm Bells'

Export Boom Is a Thing of the Past... Profitability Expected to Worsen Amid Weak Demand
Samsung and LG Electronics Respond with 'Premium' Strategy... Also Switching to Cost-Effective Materials

On the 22nd, when the won-dollar exchange rate surpassed 1,400 won for the first time in 13 years and 6 months, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Mo Honam munonam@

[Asia Economy Reporter Han Yeju] As the won-dollar exchange rate surpassed 1,400 won, home appliance companies such as Samsung Electronics and LG Electronics are on high alert to devise countermeasures. This is because the burden of importing major components has increased due to soaring raw material and logistics costs, coupled with the continued high exchange rate.

According to the Seoul foreign exchange market on the 22nd, the won-dollar exchange rate started at 1,398.0 won, up 3.8 won from the previous trading day (1,394.2 won), and surpassed 1,400 won shortly after the market opened. This is the first time in 13 years and 6 months since March 31, 2009 (high of 1,422.0 won during the financial crisis) that the exchange rate has reached the 1,400 won level.

Emergency signals have been triggered in the home appliance industry. Home appliance companies import raw materials from overseas and export finished products. Until now, a high exchange rate has also acted as a factor that enhances the cost competitiveness of home appliance exports, but under the current demand slowdown, it may negatively affect performance. Although the surge in raw material import prices due to supply chain issues such as war should be reflected in product prices, it is difficult to raise prices if export conditions are not as favorable amid demand slowdown. The higher the exchange rate rises, the more inevitable the deterioration in profitability becomes.

Samsung Electronics and LG Electronics have already begun to feel the impact of rising raw material costs. In the first half of this year, Samsung Electronics’ raw material costs increased by 24.6% compared to the same period in 2021, and LG Electronics’ by 17.8%, which is understood to be influenced by both rising raw material prices and the exchange rate.

Negative effects on the performance of the two companies are also expected. Nam Daejong, a researcher at eBest Investment & Securities, analyzed, "The TV shipment target for this year is continuously being lowered," adding, "Although production costs have risen due to inflation, consumer purchasing power appears to have decreased due to steep price increases." He forecasted that Samsung Electronics’ home appliance division operating profit in the third quarter of this year will decrease by 34.21% compared to the same period last year.

Lee Juho, a researcher at Korea Credit Rating, said, "LG Electronics’ operating profit margin is declining due to rising prices of raw materials such as steel, resin, and copper, as well as logistics costs in 2022," and added, "Although the second half is the seasonal peak for TVs and home appliances, considering the temporary advancement of durable consumer goods replacement periods due to increased non-face-to-face demand in 2020-2021, demand in the second half of this year is expected to remain at a reduced level compared to the same period last year."

Samsung Electronics and LG Electronics have announced a strategy to focus on selling high-priced 'premium' products. This is because the ultra-high-end market tends to remain relatively resilient even when demand shrinks. Additionally, global events such as the Qatar World Cup and Black Friday are scheduled for the second half of the year, providing opportunities to expand sales.

They also plan to secure profitability through changes in raw materials. An LG Electronics official explained, "We are purchasing raw materials at prices lower than market prices through long-term partnerships and collaboration with strategic suppliers," adding, "We are making efforts to offset the rise in raw material prices by changing materials to cost-saving alternatives compared to existing materials."

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