The rise in the cost of raw materials is putting pressure on local manufacturing firms, according to a survey by the Korea Chamber of Commerce and Industry released yesterday.
When the chamber asked 504 firms if they can deal with cost problems caused by higher raw material prices, 24.8 percent said no. The survey revealed that small and midsized companies are suffering more than large companies from the situation.
The price of copper has jumped 70 percent over the past year and nickel more than 120 percent. Aluminum prices have risen 75 percent and iron 70 percent. The price of west Texas intermediate crude oil has been on a steady rise, marking $86.84 a barrel on Tuesday, which was the highest since October, 2008.
“The rise in raw materials cost is largely due to increased demand with the gradual recovery of the global economy, the weakening dollar, and natural disasters striking countries supplying the materials,” said Sohn Young-ki, team director of the chamber’s macroeconomics department.
Among the surveyed firms, 31.9 percent said the rising costs are causing severe damage to their overall business and 61.3 percent said they are at least affected in having to pay more money for materials.
Firms said they were encountering such problems as unstable cash flow due to the rise in production costs (53 percent), difficulties in keeping costs under control (41.1 percent), production problems due to a lack of raw materials (22.6 percent) and a decrease in sales due to the rise in production costs (21.9 percent).
In addition, 69.2 percent of the companies said they had no alternative plans to overcome the problems.
“Considering that 97 percent of raw materials used by local companies are from overseas, the difficulty they face could be unimaginable,” Sohn said. He noted that firms should diversify supply sources, cut costs and look for alternative materials. In a bid to help firms fight the high materials costs, the chamber suggested that the government help improve business loan conditions and cut import taxes.