As exchange rates and international oil prices have recently declined, the industrial sector is experiencing mixed reactions. While the aviation, battery, and steel industries anticipate reduced operational costs and raw material expenses, the export-dependent automotive sector is concerned about declining profitability due to the diminishing effects of the exchange rate.
According to industry sources, airlines are smiling for the first time in a while. With jet fuel prices, which account for about 30% of airline operating costs, stabilizing and the won-dollar exchange rate falling, operational burdens are expected to ease significantly.
Airlines primarily settle major costs such as fuel, aircraft leasing, and maintenance in dollars, so a lower exchange rate enhances cost-saving effects. Additionally, as the exchange rate drops, the purchasing power of domestic travelers going abroad increases, raising expectations for improved passenger load factors.
An airline official stated, "We faced a challenging period in May and June, to the point of entering emergency management, but the business environment has noticeably improved recently. We plan to enhance profitability by launching various promotions to match peak season demand."
According to the Ministry of Land, Infrastructure and Transport, the average price of Singapore jet fuel (MOPS) used to calculate international fuel surcharges for August was $119.06 per barrel from June 16 to July 15, a decrease of $23.30 from the previous month. Consequently, the applicable stages for international fuel surcharges dropped to 14 stages, down from 33 stages in May. The exchange rate, which soared to the 1,560 won range in June, has now fallen to 1,424.50 won.
The battery and steel industries are also welcoming the stabilization of the exchange rate. Given that they import most of their key raw materials in dollars, a lower exchange rate can lead to cost reductions. With the majority of raw materials imported, a stronger won is expected to further alleviate procurement burdens for the battery and steel sectors.
According to the Korea Mine Rehabilitation and Mineral Resources Corporation (KOMIS), the price of lithium carbonate as of the fifth week of July was $20,772 per ton, down 0.9% from the previous week. Iron ore prices also stabilized at $97.07, a 1.7% decrease from the previous week. With the strengthening of the won, the procurement burdens for the battery and steel industries are likely to ease further.
In contrast, the domestic automotive industry, which is highly reliant on exports, is facing profitability challenges due to the declining exchange rate. Automakers typically receive most of their overseas sales revenue in dollars, so when the value of the won rises, the conversion of dollar sales into won results in decreased revenue and operating profit.
As the U.S. automotive tariff burden and global competition continue to intensify this year, a further weakening of the exchange rate's favorable effects could complicate profitability defense. Indeed, Hyundai Motor and Kia reported second-quarter operating profits of 2.85 trillion won and 2.63 trillion won, respectively, down 20.8% and 4.9% from the same period last year.
An automotive industry official noted, "As automakers have a high export ratio, a rising won tends to lower profitability during the conversion of overseas sales revenue into won. However, the current exchange rate is within the expected range reflected in this year's business plan, so we believe we can defend profitability through product mix improvements and cost efficiencies."
* This article has been translated by AI.
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