Soaring won squeezes companies

By Lee Hyo-sik The majority of exporters here have seen their bottom lines deteriorate as a result of the steep appreciation of the Korean won against the dollar and other major foreign currencies over the past few months. Among others, makers of semiconductors, home appliances and chemical products have failed to generate profits from selling goods on the global market, due to the strong won. If the local currency continues to gain ground against the greenback, automakers and most other exporters will face difficulties in remaining profitable. According to a survey of 500 local exporters, conducted by the Korea Chamber of Commerce and Industry (KCCI) Thursday, nearly 58 percent said they are suffering from the won’s recent strength against the dollar, citing foreign exchange losses, worsening profitability and weakening price-competitiveness. The survey showed that businesses want the government to maintain a stable won-dollar rate, extend financial support to exporters and help individual companies manage currency risks. ``It is extremely difficult for individual firms to cope with changes in foreign exchange rates because they are mostly determined by external factors. They should make an all-out effort to cut operating costs and develop advanced technologies to remain competitive in the global market,’’ a KCCI official said. He also said the government should provide more financial and other support to small exporters, as well as stabilize the financial and foreign exchange markets. According to the survey, the average breakeven won-dollar rate for Korea Inc. was estimated at 1,086.2. This means if the rate drops below 1,086 won, companies do not earn profits from shipping and selling products overseas. The won gained 3.9 won to close at 1,089.30 per dollar Thursday from the previous day. The stronger won makes Korean products more expensive on the global market, chipping away at their price competitiveness. This also results in smaller earnings in terms of the won for exporters, which wreaks havoc on their profitability. By sector, the breakeven won-dollar rates were 1,106.5 won for home appliances, 1,104.3 won for petrochemical products and 1,099 won for semiconductors and displays, according to the KCCI. Given the rate fell to 1,085 won Wednesday, the more products they ship overseas, the larger the losses they incur. Automakers are expected to become unprofitable if the won is traded below 1,084.9 won per dollar. The story is the same for steelmakers and shipbuilders if the won-dollar rates dip below 1,084.2 won and 1,083.3 won, respectively. ``Home appliances, semiconductors, automobiles and ships account for more than 40 percent of Korea’s entire outbound shipments. Their deteriorating profitability due to the strengthening of the won has and will pose a serious threat to the local economy,’’ the KCCI official said. The won’s fast appreciation is mainly due to expansionary monetary policies adopted by the United States, Europe and Japan. This has flooded emerging markets with cheap money. Korea’s improved sovereign credit ratings and its relatively high interest rates, compared with advanced nations, have also attracted larger amounts of hot money from investors seeking to earn larger returns. The KCCI said the breakeven exchange rate for large companies was estimated at 1,076 won, while small– and medium-sized enterprises lose money if the rate falls below 1,090 won. This means small exporters are more vulnerable to the strengthening of the local currency against the dollar.