As exchange rates and international oil prices have recently declined, the industrial sector is experiencing mixed reactions. While the aviation, battery, and steel industries anticipate reduced operational costs and raw material purchasing burdens, the automotive sector, which heavily relies on exports, is concerned about declining profitability due to the diminishing effects of exchange rates.
According to industry sources, airlines are smiling for a change. With jet fuel prices, which account for about 30% of airline operating costs, stabilizing and the won-dollar exchange rate falling, operational burdens are expected to ease significantly.
Airlines primarily settle major costs such as fuel, aircraft leasing, and maintenance in dollars, so a lower exchange rate enhances cost-saving effects. Additionally, as the exchange rate drops, the purchasing power of domestic travelers heading abroad increases, raising expectations for improved passenger load factors.
An airline official stated, "We faced a challenging period in May and June, prompting us to enter emergency management, but the business environment has noticeably improved recently. We plan to enhance profitability through various promotions aligned with peak season demand."
According to the Ministry of Land, Infrastructure and Transport, the average price of Singapore jet fuel (MOPS) used to calculate international fuel surcharges for August was $119.06 per barrel from June 16 to July 15, a decrease of $23.30 from the previous month. Consequently, the applicable stage for international fuel surcharges has dropped to 14 stages, down from 33 stages in May. The exchange rate, which soared to the 1,560 won range in June, has now fallen to 1,424.50 won.
The battery and steel industries are also welcoming the stabilization of exchange rates. Given that they import most of their key raw materials in dollars, a decline in exchange rates can lead to cost-saving effects. With the majority of raw materials imported, a stronger won translates to reduced manufacturing costs.
According to the Korea Mine Rehabilitation and Mineral Resources Corporation (KOMIS), the price of lithium carbonate as of the fifth week of July was $20,772 per ton, down 0.9% from the previous week. Iron ore also showed stability, falling 1.7% to $97.07. With the strengthening of the won, the burden of raw material procurement for the battery and steel industries is expected to ease further.
In contrast, the domestic automotive industry, which is highly export-dependent, faces profitability challenges due to falling exchange rates. As automakers receive most of their overseas sales revenue in dollars, an increase in the value of the won results in decreased revenue and operating profit when converting dollar sales into won.
This year, amid ongoing U.S. automotive tariff burdens and intensified global competition, the diminishing benefits of favorable exchange rates could complicate profitability defense. Indeed, Hyundai Motor and Kia reported second-quarter operating profits of 2.85 trillion won and 2.63 trillion won, respectively, marking declines of 20.8% and 4.9% compared to the same period last year.
An automotive industry official noted, "Given the high export ratio of finished vehicle manufacturers, an increase in the value of the won tends to lower profitability during the conversion of overseas sales revenue into won. However, the current exchange rate is within the expected range reflected in this year's business plan, so we believe we can defend profitability through product mix improvements and cost efficiencies."
* This article has been translated by AI.
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