Commodity volatility poses serious challenge to Korean key exporters

2021.10.06 09:17:54 | 2021.10.06 10:02:39

[Graphics by Song Ji-yoon]이미지 확대

[Graphics by Song Ji-yoon]

The uninterrupted surge in commodity prices fueled by China’s power crunch on top of ongoing supply and shipping woes is poised to unsettle South Korea’s manufacturing capacity from wafer-based production to car assembly lines that are largely behind the country’s exports and external-reliant economy.

According to Korea Mineral Resource Information Service (KOMIS) on Tuesday, the price of magnesium, a key material for smartphones, PCs, aircraft, and vehicles, skyrocketed to $8,250 per ton on Oct. 1, breaking its previous record of $6,000 in 2007.

The price soared a whopping 169 percent over the past three months mainly due to a supply shortage in China, which commands 90 percent of global magnesium supply, after the local industry was ordered by the government to cut or halt production amid a nation-wide power crunch driven by a shortage of domestic coal supplies and Beijing’s aggressive decarbonization efforts.

The price of tungsten, another essential material used in the manufacturing of semiconductor and machinery, is on a sharp rise. The international price of tungsten carbide, 82 percent of which comes from China, climbed by 37 percent from $29.25 per kilogram on Oct. 1 last year to $40.25 a year later. The price of silicon metal, a feedstock in the production of semiconductor wafers and solar panels, surged by a staggering 322 percent just in three months from 14,408 yuan per ton to 60,833 yuan. Yunnan and Sichuan provincial governments are also imposing curbs on production of minerals including silicon metal to save electricity.

The spike in commodity import prices will likely weigh on output and bottom lines of Korean semiconductor, battery and IT hardware producers.

[Graphics by Song Ji-yoon]이미지 확대

[Graphics by Song Ji-yoon]

Korean chip majors can raise 10 to 20 percent increase in contract prices amid a higher demand for electronics, but the faster rise in raw materials would cause them to lose profits as they cannot immediately reflect the volatile commodity prices, said an unnamed executive in the semiconductor industry said.

Production of mineral resources such as rare earths are monopolized by a select producers like China. The U.S. is seeking to produce strategically important minerals domestically to ease the constraint, but it is impossible to establish its own supply chain overnight, said Kim Kyung-hoon, a researcher at Korea International Trade Association (KITA).

Korean manufacturers operating in China are also concerned about possible disruptions in local production bases in China due to the country’s ongoing power crisis.

Winia Electronics, a Korean company which runs a home appliance factory in Tianjin, is operating the factory only at night due to local state guidelines. Samsung Electro-Mechanics in Tianjin and LG Display in Guangzhou are facing a similar problem.

By Lee Jong-hyuk, Park Jae-young and Minu Kim

[ⓒ Pulse by Maeil Business Newspaper &, All rights reserved]