Oil prices, exchange rates and interest rates 3amid the burden, pressure on companies’ earnings
With high oil prices and a weaker won adding to inflationary pressure, South Korea, like the United States, is facing pressure to raise interest rates. As a result, cost burdens are growing for companies in cost-sensitive sectors such as aviation, transportation and chemicals, as well as for companies with substantial borrowings.
As high oil prices add to inflationary pressure, South Korea, like the United States, is facing pressure to raise interest rates. The simultaneous combination of rising oil prices, a weaker won and the possibility of higher interest rates has increased companies’ cost burdens. Industry sources say that the burden of raw material and fuel costs is growing.
A weaker won increases the cost of imported raw materials and the burden of repaying foreign-currency-denominated debt. Cost pressures are already emerging immediately at companies that source raw materials in dollars. The transportation and aviation industries are being hit directly by rising fuel costs.
The possibility of higher interest rates increases borrowing costs. Interest expense burdens are rising rapidly for small and medium-sized companies with substantial borrowings and for financially vulnerable companies. Higher financial costs are cited as a factor that reduces operating profit.
Companies are pursuing price increases alongside cost-cutting measures. Some are reflecting higher costs in product prices. Others are responding by reducing operating expenses.
Concerns have been raised that polarization may deepen across industries because of differences in profit structures. Some companies with high export dependence benefit from exchange-rate effects. By contrast, companies that import large quantities of raw materials face greater cost pressures.
Industry sources say the government and financial authorities are monitoring the situation. Companies are reviewing quarterly earnings and liquidity indicators. Industry officials said they are examining their cost and borrowing structures in detail.
Sources: 연합뉴스 경제
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