Apartment Construction Faces Delays Due to Lack of Steel

○ Suffering industries

Construction work temporarily halted on an apartment complex in Namyangju City, Gyeonggi Province due to the lack of iron rods, a key component in apartment buildings. In February 2007, the price of high impact iron rod, 10 millimeters in diameter, was set at W480,000 per ton. However, the price soared 22.9 percent to W590,000 per ton late last year and spiked even further to W750,000 per ton earlier this month.

SK Energy stopped operations of one of its four BTX (benzene, toluene and xylene) factories in Ulsan and lowered the rate of operation to a level between 80 to 85 percent in the other three factories. Declining profitability resulting from the high price of oil forced the firm to make the decision.

The cement industry has also been suffering from difficulties due to rising price of bituminous coal and unexpected weather conditions, which have forced Australian and Chinese vendors to temporarily halt coal exports and mining.

The furniture industry is concerned as it has not reflected the price surge of MDF (medium-density fiberboard), which has risen by 20-30 percent since late 2007, into its price tag of finished goods. Kitchen furniture maker ENEX said, “Consumers are hesitating to spend. If we raise the price of our products, we’ll inevitably face a decline in sales.”

The aviation industry, suffering from the oil price hike, is also struggling to cut cost by loading less water on airplanes. For every dollar increase per barrel, Korean Air’s annual operating profit decreases 30 billion won while that of Asiana Airlines falls 14.4 billion won.

Despite expected harsh criticism from the media, the nation’s largest steelmaker POSCO decided to increase its price of stainless steel products by W250,000 per ton from Mar. 17. It explained that it had no choice but to raise the price due to soaring price of nickel, chrome, and scrap iron.

○ Smaller firms rebel

With the price of scrap and pig iron surging, smaller foundries manufacturing cast-iron products, essential for cars, ships, and machinery, announced yesterday that they would not supply relevant products to large firms unless their larger counterparts paid more for the products.

The Korea Foundry Cooperative Association said, yesterday, “Out of 500 firms, around 240 have decided to stop supplying their products to large firms for three days beginning Mar. 7. Unless larger firms pay more for our products, we’ll stop supplying products again on Mar. 15. If larger firms don’t accept our demands, we’ll interrupt all manufacturing activities beginning Apr. 1.”

However, large corporations are also facing difficulties. Even though they understand the challenges their suppliers are struggling with, paying higher prices will only likely lead to greater problems with payment.

○ Surging Consumer Price

In the wake of surging international prices for major food ingredients such as flour, palm oil, and rice bran oil, Korean food makers have also raised their product prices. For example, they increased prices of instant noodle and snacks by 100 won.

SPC Group, known for its bakery brands Shany and Samlip, has decided to raise the price of some of its products by 100 won, the first time in 14 years.

In the first week of March, the price of unleaded gasoline surged W25.15 from a week ago to W1687.87 per liter, shattering all previous records. Gasoline price also set a new high of W1495.67 per liter, up W27.52 week-on-week.

February’s consumer price index (CPI) soared 3.6 percent from a year ago. The CPI for daily necessaries which consists of basic items such as oil, green onion, and potato noodles increased 4.6 percent over the same period.

International oil prices continue to soar.

On the New York Mercantile Exchange, West Texas Intermediate for April delivery closed at $105.47 per barrel on Thursday. It was first time it closed above $105.

Dubai crude oil, which accounts for approximately 80 percent of Korea’s oil imports, also increased $2.94 per barrel to close at $96.14.