The volatility of international oil prices and exchange rates is increasing uncertainty for businesses, compounded by the potential for rising interest rates in the United States. An increase in U.S. rates would not only directly raise corporate funding costs but also impact the industry through a stronger dollar, reduced consumer spending, and higher investment costs.
The U.S. Federal Reserve is holding a Federal Open Market Committee (FOMC) meeting on September 15-16 to determine its monetary policy direction. Changes in U.S. interest rates affect global financial market flows and exchange rates, prompting domestic companies to remain vigilant.
The most immediate pressure from rising rates is the increase in financial costs for companies. Firms with significant variable-rate debt will face higher interest burdens, and the costs of raising funds through corporate bonds or new loans will also rise. Industries that rely heavily on external financing for large assets, such as airlines, shipping, and shipbuilding, are particularly sensitive to interest rate changes.
For instance, Korean Air has 7.1 trillion won in variable-rate loans and 6.8 trillion won in fixed-rate loans. If loan rates were to rise by 0.25 percentage points, the annual interest expense would increase by nearly 18 billion won. Although the company manages interest rate risk separately, the cost of raising new funds will inevitably rise in a higher interest rate environment.
Additionally, the aftermath of a stronger dollar following interest rate hikes will increase cost burdens. Many key expenses, including jet fuel, aircraft leasing fees, and overseas maintenance and parts costs, are paid in dollars. If the current strength of the won reverses, it could lead to foreign debt valuation losses and increased dollar payment costs.
The shipbuilding and shipping industries also cite rising ship financing costs as a burden due to higher interest rates. Significant funding is required for ship construction and fleet expansion, so increased rates could raise the financial costs associated with new ship orders and asset acquisition. HMM has analyzed that a 1 percentage point increase in rates would reduce pre-tax profits by about 24.2 billion won, translating to over 6 billion won in losses for a 0.25 percentage point increase.
In the automotive sector, rising financial burdens on consumers are a direct variable. In the car market, purchasing vehicles through financing options like installment plans and leases is common, so higher rates increase consumers' monthly payment burdens. Electric vehicles, in particular, may be sensitive to interest rates due to their relatively high prices and the tendency to spread initial purchase costs through financing products. This could lead consumers to delay new car purchases or opt for lower-priced models, potentially dampening sales.
The semiconductor industry is also closely monitoring the potential for rising interest rates to increase large-scale capital investment costs. As companies continue to invest in new fabs and production equipment to meet demand for high-performance memory for artificial intelligence (AI), higher funding costs could increase the investment burden.
An industry insider stated, "The rise in U.S. interest rates will not only increase borrowing costs but can also impact various sectors through multiple channels. With the addition of interest rates to existing variables like oil prices and exchange rates, the uncertainty in the business environment faced by companies has intensified."
* This article has been translated by AI.
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