"Full Impact After Inventory Depletion"... Paint Industry Also Faces 'High Exchange Rate Emergency'

Raw Material Stocks for Paints Begin to Run Out
High Exchange Rate Drives Up Raw Material Costs, Increasing Financial Burden
Limited Room for Product Price Hikes Amid Economic Downturn

The prolonged high exchange rate has triggered an emergency in the paint industry, which imports most of its raw materials. Thanks to the inventory secured in advance so far, the industry has avoided the direct impact of the rising exchange rate, but once the inventory is depleted, the cost burden is expected to be fully reflected in profitability.

According to the paint industry on the 18th, major domestic paint manufacturers are on high alert over the rise in the won-dollar exchange rate. Since most of the essential raw materials for paint production, such as solvents, resins, and pigments, are imported from overseas, exchange rate fluctuations directly affect costs. Over the past three months, the won-dollar exchange rate has hovered in the mid-1400 won range, with the first quarter average rate reaching 1,451 won, the highest level since the foreign exchange crisis.

The industry has been able to minimize the impact of the rising exchange rate thanks to securing raw materials in advance in preparation for the spring peak season. However, considering that the typical storage period for raw materials is about three months, it is now time to use raw materials reflecting the high exchange rate. An industry insider explained, "It varies by material, but considering warehouse capacity, it can be assumed that about three months' worth is stocked."

The problem is that raw material prices have surged, but the market environment makes it difficult to raise product prices easily. The domestic paint market is heavily influenced by the construction industry, and there are growing concerns that the construction and real estate market downturn will be prolonged this year. Due to the decrease in construction volume and the overall economic slowdown this year, paint demand is shrinking, limiting the potential for price increases.

While the 'repainting' market has served as a pillar for the paint industry amid the sluggish construction market, even this is reaching its limits. An industry insider said, "Until last year, it was somehow possible to achieve results, but this year a major challenge will come," adding, "If political uncertainties are somewhat resolved, the exchange rate may fall again, but we need to watch closely."

Since the industry overall posted favorable results last year, a deterioration in profitability this year seems inevitable. KCC recorded an operating profit of 471.1 billion won last year, up 51% from 312.5 billion won the previous year, thanks to the booming ship market and strong performance of overseas subsidiaries. Noroo Paint also saw a slight increase in operating profit from 42.3 billion won in 2023 to 43.7 billion won last year, as both architectural and industrial paint sales held up well. Only Samhwa Paint showed weakness, with operating profit falling 26% year-on-year to 19 billion won.

In response, the paint industry is preparing countermeasures to mitigate the shock of rising raw material costs. They are diversifying raw material procurement channels, including direct overseas imports, while seeking new growth engines. Noroo Paint, which has identified secondary batteries as a new business, recently succeeded in mass-producing six products, including molding agents for batteries and flame-retardant foam for energy storage systems (ESS).

Samhwa Paint has also obtained patents related to electrolyte additives and is preparing to enter the market by introducing heat dissipation and heat insulation protective materials that control battery overheating. KCC is focusing on expanding overseas subsidiaries, which is advantageous for minimizing the impact of exchange rate fluctuations and entering the global market, while promoting efficiency in the paint business through the development of autonomous painting robots and AI-based color design systems.

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