No currency relief seen for exportersAs the Korean currency is expected to remain strong against the U.S. dollar for the foreseeable future, Korean exporters need to brace for possible foreign exchange risks, said a report yesterday.
According to a survey by the Korea Trade-Investment Promotion Agency (Kotra), Korean exporters have asked overseas buyers to raise prices 10 percent since late last year.
“Given that the Korean won appreciated by more than 10 percent in December compared to May 2012, Korean exporters would have been impacted a lot,” the report said, adding that such an increase would damage Korean exporters’ competitiveness.
Many buyers contacted by Kotra said they are likely to switch to Chinese manufacturers if prices for Korean-made consumer goods, textiles and parts rise 5 percent to 10 percent.
“The latest survey came out very differently from the one conducted two years ago, which means that local exporters are suffering with the strong won and that affects their relations with overseas buyers,” said Moon Jin-wook, an official at Kotra.
“An American textile importer expressed discomfort that a Korean exporter recently asked for a 10 percent to 30 percent price increase,” he said. “The U.S. buyer said that if Korean companies raise prices by more than 10 percent, their products would be way more expensive than Chinese products.”
Adding to exporters’ woes, the low yen is expected to make Korean products more expensive than Japanese products, Kotra said. Until last year, Korean products were very competitive.
“According to Korean companies operating in the United States, Korean-made machines were 20 percent cheaper compared to Japanese machines,” Moon said. “Now they are just 10 percent cheaper.”
Although Korean companies are maintaining a competitive edge in the U.S. automobile and IT markets, Sony, Sharp, Panasonic and other Japanese electronics companies have aggressively cut prices, the report said.
The yen is forecast to depreciate throughout the year, the report said.
The impact of the strong won will be greater this year, according to a separate Kotra survey of 21 trade centers in 19 countries.
At the end of this year, the won-to-dollar exchange rate is forecast to stand at 1,034 won, down 4.6 percent from February, the survey said.
Kotra expressed concern that small exporters are especially vulnerable to foreign exchange risks.
Only 10 percent of 99 small exporters that participated in the Kotra survey said they hold foreign exchange insurance policies.
“Foreign exchange risks are reflected in companies’ profits at least six months afterward,” Moon said. “There have been growing worries about foreign exchange risks since last year, and what is worrisome now is the worries could amplify in the coming months.”
By Song Su-hyun [firstname.lastname@example.org]