© Archyde.com. ‘Rising exchange rate = increase in exports’ is now a thing of the past… Companies ‘super emergency’
photo = Yonhap News
The soaring won-dollar exchange rate is tightening the neck of Korean companies. As raw material prices fluctuated in Korean won, the cost burden is increasing, and pressure to repay foreign currency debt is growing at the same time.
In the Seoul Foreign Exchange Market on the 13th, the won-dollar exchange rate once climbed to 1291 won, and fluctuated sharply from 1,300 won. It closed at 1284 won 20 per dollar, which was lowered by 4 won 40 due to the government’s verbal intervention, but foreign exchange experts believe that it will break through the 1,300 won level as a pre-established fact.
According to the Bank of Korea on the 15th, Korea’s imports of raw materials in the first quarter of this year amounted to $95.97 billion (about 123.82 trillion won), 51.9% ($32.81 billion, about 42 trillion) from the first quarter of last year ($63.16 billion). 800 billion) increased. During the same period, it far exceeded the total exports of Korea’s major products ($87.68 billion), including semiconductors ($34.86 billion), automobiles ($11.34 billion), chemicals ($26.68 billion), and steel ($14.8 billion). The economic circle analyzed that “the rise in the exchange rate (the decrease in the value of the won) is not helping export competitiveness, but is exacerbating the profitability of companies by increasing the burden of raw material imports that have already skyrocketed.”
Credit risks for some companies are also expected to emerge. As of the end of last year, external debt (foreign currency debt) of Korean companies reached $1438.8 billion (about 183.48 trillion won). If the exchange rate fluctuates, the interest expense on foreign currency debts converted into won increases, and the foreign exchange loss increases accordingly. Foreign exchange experts said, “As the conditions for foreign currency procurement become tighter, more and more companies are having difficulties repaying foreign currency borrowings. Kim Jeong-sik, a professor of economics at Yonsei University, pointed out, “The trade balance has deteriorated following the fiscal balance, making it a dangerous situation.” Trade balance deteriorated as the won value fell… This year, 9.86 billion won turned into a deficit
Last month, the import price index surged 35%… The Japanese yen, which is an export competitor, has also plummeted. Financial managers of Korean Air and Asiana Airlines, whose foreign currency debts amount to 14 trillion won (as of the end of last year), have a dark expression these days. This is because the soaring won-dollar exchange rate is about to break through the 1,300 won mark. It is no exaggeration to say that the performance of these two companies depends on the exchange rate. If the average exchange rate jumps 10%, Korean Air and Asiana Airlines’ net profit this year will evaporate by 485.3 billion won and 376.1 billion won, respectively. Export manufacturers are also crying over the fluctuating exchange rate. The common explanation among exporting companies is that “a decline in the value of the won leads to an increase in exports” is an old saying.
Growing trade deficit According to Seoul Foreign Exchange Brokerage on the 15th, the average won-dollar exchange rate from this year to the 13th was 1219 won and 32 won. Compared to last year’s average exchange rate (1,144 won and 60 won), it rose 6.53% (74 won, 72 won). This means that the value of the won has fallen.
In the past, when the value of the won fell (the exchange rate rose), exports increased, and the current account and trade surplus widened. 1998, when Korea suffered a foreign exchange crisis, is a typical example. At that time, the average exchange rate was 1,398 won and 88 won, a 47.08% (447 won, 77 won) jump from the previous year.
The situation in 2009, right after the global financial crisis, was similar. As the average exchange rate that year rose 15.76% (173 won, 81 won) from the previous year to 1,276 won and 40 won, the current account surplus in 2009 (33,087.6 million dollars) soared to the highest level since 1998.
But today, the situation is quite the opposite. As the won depreciates, the trade balance is deteriorating. According to the Korea Customs Service, the trade balance (exports minus imports) recorded a deficit of $9.86 billion until the 10th of this year. Compared to the same period last year ($7.924 billion surplus), it turned into a loss. The current account also recorded a surplus of $15.06 billion in the first quarter of this year, down 32.56% ($7.27 billion) from the first quarter of last year.
Economists also believe that the ‘exchange rate increase = export increase’ scheme no longer works. The report ‘Analysis of Factors in Korea’s Current Account Surplus’ published by the Bank of Korea in November last year pointed out that “the contribution of financial factors, including the exchange rate, to the current account surplus is not large.”
The cause is a complex supply chain structure. This means that the influence of the won has dropped as the method of importing raw materials procured from abroad, reprocessing them and exporting them has become established among domestic manufacturing companies. When the won depreciates, you have to pay high prices to buy raw materials. As a result, performance and profitability are damaged. As the exchange rate fluctuated, the import price index in April jumped 35% compared to the same month of the previous year.
In addition, the depreciation of the Japanese yen, which is an export competitor, is also affecting exports. This month, the exchange rate of the yen to the dollar also exceeded 130 yen for the first time since April 2002. Companies that “diversify sources of foreign currency procurement” are busy preparing countermeasures related to exchange rate risk. An increasing number of companies are signing up for currency hedging (risk aversion) products or increasing dollar liquidity. Airlines that pay for fuel and aircraft lease payments in dollars are diversifying their sources of foreign currency. It is a method of reducing the portion of borrowings in the dollar, which is strong, and increasing the portion of borrowings in yen, euro, and won, which are showing a sluggish flow.
Chemical companies that import naphtha, a basic raw material for petrochemical products, and steel companies that import iron ore and coal by paying dollars explained that they would prevent foreign exchange losses in the form of increasing exports that receive dollars. An official from a chemical company said, “I am concerned that demand may contract due to fluctuations in the value of the dollar and increasing internal and external uncertainties.”
Automakers with more ‘benefits’ than ‘real’ are also reviewing business plan adjustments. An industry insider said, “We are enjoying the effect of improving our performance as price competitiveness is strengthened due to the increase in the exchange rate. .
Correspondent Kim Ik-hwan/Kang Kyung-min/Kim Il-gyu reporter [email protected]
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