Weak Dollar Signaling Red Lights on the Exports

Exporting firms are taking pains to prepare for low profit cause by the sharp declining of won-dollar exchange rate (strengthened won).

Won-dollar exchange rate closed at year’s low 1226.30 won decreased 3.2 won from the previous day in the Seoul foreign exchange market on the 31st.

As a result, some companies are trying to save this situation through technical development and increasing the production of high value-added goods, and other seriously think of moving factories abroad worried about low rate below 1,200 won extending over a long period.

▽ What makes the exchange rate decrease = Dollar on the whole is going bearish against major currencies in the international financial markets since April 12th. That’s because economic recovery of U.S. is uncertain, and U.S. may alter the `strong dollar policy` due to the great current account deficit amounting 4.1 percent of Gross Domestic Product (GDP).

On the contrary, Korean won is in the bullish trend thanks to recovering business, world 5th foreign exchange holding, and inflowing foreign investment.

The problem is that the range of the decline is too large. Basically the bearish won is caused by weak dollar, but the sharper decline of won than that of yen and euro weakens the price competitiveness of our exporting goods. Won was devaluated by 7.5 percent from 1326 won last year, while yen by 3.3 percent, and euro by 4.0 percent.

▽ Extended dropping might kick the factories abroad = Samsung Electronic plans to increase the overseas producing, as the exporting price by won decreased so much, though there is no difference in the total volume of export.

Um Jeong-Kuk head of management support division said, “we are planning to increase the overseas production for some low price products, and we cannot manage to keep the domestic production under the exchange rate less than 1,200 won. Domestic production is going to focus on high value-added goods like DVD, while the production of unprofitable goods is transferred to overseas factories in China or Southeast Asia. ”

Kim Kyung-Won leader of export team in Changwon Specialty Steel Co. said, “fall by 10 won reduces sales by 200 million won. We are coping with it by increasing domestic sale and reducing the storage. ”

Lee Hak-Sang chief of trade division in Seojeon Corp. an eyewear company said, “we have no particular measures against exchange rate fall. Only way to break low rate prolonged is developing high value-added products. ”

▽ Some businesses have no influences from the rate = Car production business has not been influenced so much from the weakened won, as they had made a long-term contracts.

Lee Won-Hee division head of international finance team in Hyundai Motors Corp. said, “we are not worried about declining rate of won, as we had fixed the exchange rate that secures the proper profit at 1,150 won. ”

Shipbuilding circles also were not so hard hit by the rate, as yen is in high tone keeping yen-won rate at 10:1. They could stand as far as 9:1 yen-won rate.

Meanwhile, air service and shipping circles are getting profits from low rate, as they purchase crude oil with dollar.

Seo Gang-Yoon propaganda division chief in Korea Airline said, “decrease of exchange rate by 10 won reduces our foreign currency debts by 20 billion won. Air service market is lively with the exchange rate fall along with the stable oil price and special demand by World Cup. ”

Sang-Chul Kim Byong-Ki Lee sckim007@donga.com eye@donga.com