Economic Woes And High Oil Prices Pressure Industry

Hyosung has informed its related textile companies of increases in the selling price. The company has decided to mark up the price of raw materials for nylon and polyester by $0.03 per pound. Hyosung is going to carry out another $0.1 increase by the end of next month.

Immediate discontent has been manifested from the textile companies. As the textile industry suffers from economic hardships, its related textile companies have announced that factory closings would be unavoidable if the price of raw material is increased. But Hyosung has made their position clear that the price increase cannot be retracted.

“This increase reflects only 20 percent of the intended amount. What should we do? The price of raw materials has increased,” remarked Hyosung.

In conjunction with the oil price increase, the price of raw materials extracted from crude oil has been marked up in succession. In addition, the tendency of oil price increases seems to be protracted.

Due to this tendency, not only the industries which rely on oil products, but also the industrial world overall, are pressured by high oil prices. The anxieties which are expected to delay economic recovery have spread out.

According to Korea Oil Coporation, Dubai oil on March 2 sold for $30.82 a barrel, which is an increase of $0.56 from that of yesterday and shows the highest level since February 25 of the last year ($31.19). Brent Oil was dealt at $33.56, showing a $0.78 increase.

-Aviation Companies Weigh Emergency Management

Asiana Air Lines has organized its yearly plan, expecting that the average oil price will reach the $29 level per barrel based on the Dubai oil price. But because the oil price has soared recently, they are reconsidering the existing measure and entering an emergency management condition that entails reducing expenditures and flexible operations on non-profitable routes.

Asiana will bear the burden of an additional 15 billion won per a year if the oil price shows a dollar increase compared with former expectations.

Although it is saving its oil reserve for 30 days use in their storage tank in Kimpo, Korean Air Lines is taking pains to consider a countermeasure that certain amount of damage will not be avoided if the oil price continues soaring up.

SK Corporation had fixed the average oil price at $24.8 in their yearly management plan for this year. In accordance with that plan, they have driven forward the measure to purchase crude oil directly from the spot market. That is, they try to lower the ratio of yearlong contracts in order to secure crude oil at low prices as the occasion demands.

LG Caltex Oil which expected the oil price to be $25 this year, has decided to reduce the ratio of Dubai oil among their import lines and diversify their sources of oil to the East-southern Asia and South American regions in order to minimize the damages from the oil price increase.

-Chemical Fiber Companies: “Ill comes on the back of worse.”

The companies which utilize the by-products that come out of the oil refining procedure are being damaged directly from the oil price increase. As they manufacture halfway materials for the use of plastic products, it is hard for them to reflect the increased price directly into their own products.

In particular, the chemical fiber industry is placed at stake because of the overlapping misfortunes of the bad economy and raw material price increases.

In fact, the price of the raw materials of nylon has increased from $1,164 per ton in the last year to $1,340 in this year. TPA, the raw material of polyester, has skyrocketed from $593 in 2003 to $750 this year.

Due to this sudden increase, chemical fiber companies such as Hyosung and Kolon have tried to mark up the selling price, but it cannot be easily accepted by their major sources of demand, textile companies.

The petroleum chemical companies are fixing their eyes on the movement of oil price. Demand from China can cover the increased price of raw materials right now, but if the high oil price is prolonged, they cannot ignore the burdens of it.