Losses likely to mount for exporters

A sign board at Korea Exchange Bank’s headquarters in central Seoul yesterday shows the Korean won appreciating to 1,079 won against the dollar. [YONHAP]

Small and midsize exporters are expected to suffer larger losses as the Korean currency continues to appreciate against the U.S. dollar.

The won closed 1,079 won against the greenback, the first time it has strengthened beyond 1,800 won in 15 months.

According to a survey by the Korea Trade Insurance Corporation (K-sure), the break-even point for most small - and mid-sized exporters was 1,102 won this month, whereas for conglomerates it stood at 1,059 won.

The survey was conducted on 380 exporters. Small- and mid-sized exporters are already making losses every time they ship their products overseas.

The majority of the smaller exporters said they lacked information on currency hedging products as well as employees specializing in this field. Nearly one quarter of them said they had no measures to counter the foreign-exchange fluctuations.

“The survey clearly showed that small and mid-sized exporters have been facing difficulties due to their lack of expertise and information on managing currency risks,” said Choi Kwang-shik, head of the capital department at K-sure.

The appreciating won is expected to have a limited impact on conglomerates, however, as they have been stepping up their risk management in recent years.

The manufacturing and construction affiliates of Hanwha Group saw their operating profit shrink by a total of 50 billion won in 2009 when the won appreciated 100 won against the U.S. dollar.

A 10 won appreciation is likely to cause a 200 billion won loss for Hyundai Motor Group, whose exports account for just over 70 percent of its total sales. Hyundai Motor is estimated to lose 120 billion won while its main affiliate would drop 80 billion won.

However, the group has a team closely monitoring the foreign-exchange changes and has stepped up related safety measures, such as by leaning more on the euro and expanding production plants abroad. Hyundai Motor last month completed construction on its production plant in Brazil, targeting the South American market. Hyundai Motor has now established plants in seven countries including the U.S., Turkey and China.

Samsung Electronics and LG Electronics have also been hedging their currency exchange risks by reducing their use of the U.S. dollar as a main trading currency. They also tightly manage their respective hedging periods and ratios and balance their assets and debts in foreign currencies.

Meanwhile, the government is expected to take additional actions to ease currency volatility by restricting excessive capital flows in and out of the financial markets.

The move seems likely after an announcement in late November that it will lower the ceiling of foreign exchange forward positions held by local and foreign banks by 25 percent amid the local currency’s gain, adding that further actions would be taken if needed.

The government is also likely to change the way it measures currency derivative holdings subject to the ceilings from the current monthly average to daily transactions.

Experts are concerned that the current system gives banks space to hold more currency derivatives on any given business day than the ceilings allow, as long as the average remains below the restrictions for the previous month.

By Lee Ho-jeong, Yonhap [ojlee82@joongang.co.kr]