International Raw Material Prices Causing Serious Crisis

As international oil prices continue to break record highs, passing the $52 per barrel mark, the prices of other raw materials, including gold, copper, and aluminum, have also increased.

Accordingly, the Korean economy, which depends on the import of raw materials, is expected to face serious setbacks from inflation and the worsening profitability of enterprises.

According to the Korea National Oil Corporation on Thursday, October 7, the futures price for West Texas Intermediate (WTI) crude for November delivery closed at $52.02 per barrel on the New York Mercantile Exchange, rising by $0.93 from the previous day. WTI futures for this day rose to as high as $52.15 during the session.

The futures for Brent crude (November delivery) at the International Petroleum Exchange in London rose by $0.86 from the previous day and closed at $47.99. Brent crude, at one point, surpassed the $48 mark during the session.

This increase in international oil prices was analyzed to have been from the somewhat large damage to the U.S. oil production facilities around the Gulf of Mexico due to Hurricane Ivan, and concerns that the oil supply may not be able to satisfy winter demands.

However, Dubai crude, the oil which Korea imports the most, closed at $37.51, falling by $0.27 from the previous day on the expectation that the production in Middle East oil-producing countries will increase.

David Robinson, the deputy director of research at the International Monetary Fund (IMF), said that “the oil shortage will continue for a couple of years, and the worldwide economy may become fragile.”

The prices of other raw materials, including copper, have continued to rise as well.

The futures price for copper rose by $60 and was traded at $3,039 per ton on the London Metal Exchange on October 6. Copper futures rose to $3,045 per ton during the session, and hit their highest level in six months.

Gold rose by 0.3 percent and was traded at $418.85 per ounce, nearing its record high for the past six months.

Experts said that with the jump in international raw material prices, including oil, it is highly likely that the Korean economy will fall victim to stagflation (inflation during a recession).

Sharon Lam, an economist at Morgan Stanley, warned, “Increasing oil prices are pressuring prices in Korea. They are facing the dangers of stagflation with the slowdown in exports and the ongoing slump in domestic spending.”

Chi-Young Shin higgledy@donga.com