"Exchange Rate Rise, Increased Costs of Imported Materials like Rebar ... Need to Strengthen Supply Chain Stability"

Pressure on Construction Import Costs Rises by 0.34%
Large Import Volumes of Rebar, Steel Bars, Stone Products, and Plywood
"Need to Respond to Exchange Rate Fluctuations and Manage Domestic and External Uncertainties"

The won-dollar exchange rate has reached its highest level in 15 years and 10 months, raising concerns about negative impacts on the construction industry due to rising costs of imported materials such as rebar and plywood.

On the 19th, the Construction Industry Research Institute stated in a trend briefing, "The average exchange rate per dollar in December was 1,434.4 won, the highest since February 2009 when the exchange rate surged during the financial crisis," adding, "As increases in costs for imported materials such as rebar, stone products, and plywood are expected, it is necessary to strengthen supply chain stability."

The rise in the won-dollar exchange rate can improve exports due to the depreciation of the won, but it also brings about increased costs for imports, which may shrink the domestic market, presenting a negative aspect. South Korea’s overall import dependency is 10.7%, and it is analyzed that a 10% increase in the exchange rate results in about a 1% rise in costs. The difference between the average exchange rate in December last year and December 2023 is 10.0%, indicating that import prices increased by approximately 1% during the same period.

The construction industry has a relatively low import dependency of 3.4% compared to other industries. The Construction Industry Research Institute analyzed that if the exchange rate rises by 10%, the construction industry will face a primary cost increase pressure of about 0.34%. When applying the import dependency of domestically produced intermediate input items by industry, a 10% exchange rate increase is estimated to cause a secondary cost increase pressure of 0.52% due to cost increases in other industries.

The institute explained, "While the short-term impact is relatively low, the secondary effects caused by cost increases in other industries are significant, so the longer the exchange rate remains high, the more indirect cost pressures are likely to increase."

Examining items that could affect construction costs due to recent exchange rate changes, the items with the greatest impact based on total transaction value are △rebar and steel bars (6.04 trillion won) △stone products (1.77 trillion won) △plywood (1.34 trillion won). The import amounts are △rebar and steel bars (900 billion won) △stone products (550 billion won) △plywood (530 billion won).

Following these are △construction-use non-refractory ceramic products (import amount 530 billion won) △valves (390 billion won) △lighting fixtures (330 billion won) △sawn timber (310 billion won), among others.

The institute stated, "Rebar and steel bars involve a total input of about 6 trillion won, of which 15%, or 900 billion won, are imported products, making this item the most affected by exchange rate changes in terms of construction cost increases," and added, "Stone products are analyzed to have import transactions accounting for 31.2% (550 billion won) of the 1.77 trillion won input cost."

The government needs to reduce material procurement costs for companies, and construction firms must also respond to rapid exchange rate fluctuations, the institute explained.

Researcher Park Cheol-han of the Construction Industry Research Institute said, "It is necessary to expand stockpiling of raw materials with high import dependency and strengthen supply chain stability by discovering alternative import countries, as well as encourage purchasing a certain level of domestic products," adding, "Companies should consider subscribing to financial products for currency hedging to respond to rapid exchange rate changes."

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