Korea Inc. shifts to emergency mode on high rates, FX and raw material costs

South Korean companies have shifted to an emergency mode as rising interest rates, strong dollar and higher raw material costs are making it difficult for them to set up business plans for next year.

Federal Reserve’s fourth 0.75-percentage-point rate hike on Thursday is expected to have adverse impact on most of South Korea’s industries including semiconductors, automobile, refinery, steel and aviation. An official at a conglomerate said that it’s become overwhelming these days trying to deal with interest rates and foreign exchange movements.

A local steelmaker is concerned that high interest rates driven by the Fed’s giant steps are set to push up raw material costs further, while steel prices are falling due to weak demand amid a global economic slowdown.

The airline industry is also facing higher interest costs due to the Fed’s decision. Korean Air Lines Co.’s non-fixed borrowing amounts to 4.7 trillion won ($3.3 billion), meaning that its interest expenses fluctuate by 47 billion won every time interest moves by an average 1 percentage point. Korea’s No. 1 full-service air carrier is trying to reduce risks by shifting to raise funds at fixed rates in euros and yen instead of U.S. dollars.

An official in the aviation industry said that slowing global economic growth amid high interest rates are expected to undermine demand for travel and cargo.

Refineries are not an exception because they use the debt market to raise funds but it takes about two months to process crude to end-products for sale.

The shipping and logistics industries are worried about slowing global trade. In the third quarter, shipping volume dropped due to rising interest rates. Electronics companies are braced for weak sales during the “Black Friday’’ period. In particular, sales of home appliances such as television are expected to be hit the most. Automakers are concerned that consumers may put off car purchases because of high interest rates.

An official at the Federation of Korean Industries said that liquidity measures are needed as companies could face cash crunches.

By Seo Jin-woo, Lee Yoon-jae, Seong Seung-hoon, Kyunghee Park