95% of SMEs Face Rising Costs Due to Middle East War: "Unilateral Price Hikes by Large Suppliers"

Most Raw Material-Sourcing SMEs Face Cost Pressure and Supply Instability
Many Hold Less Than 70% of Normal Inventory Levels
Especially Severe Price Increases for Packaging and Film Materials

It has been found that small and medium-sized enterprises (SMEs) sourcing raw materials and components are facing both rising costs and supply instability due to the ongoing war in the Middle East. Most SMEs currently hold less than 70% of their usual inventory levels.

Changes in Small and Medium-Sized Enterprises' Production Activities Due to Middle East Situations. Korea Federation of SMEs

The Korea Federation of SMEs announced on June 2 the results of a survey titled "Difficulties in Securing Raw Materials and Components for SMEs Related to the Middle East," which was conducted with 410 SMEs from May 15 to 31. The survey focused on companies using petrochemical feedstocks, nonferrous metals, construction and civil engineering materials, as well as electrical and electronic component materials.

According to the results, 94.6% of SMEs responded that their cost burden had increased, and 80.7% reported experiencing shortages in raw material and component supply.

Results of changes in major raw material procurement unit prices compared to February. Korea Federation of Micro Enterprise.

Compared to the end of February, 71.9% of companies reported that the average purchase price for major raw materials and components had risen by more than 20%. The rate of price increase varied by industry, with the "packaging, film, and paper" sector being hit the hardest: 31.4% of companies in this sector stated that prices had soared by more than 80%, more than double the overall average of 15.1%, indicating the most severe cost pressures.

There have also been cases where companies received notice of price hikes or faced supply restrictions without clear criteria. Company A, a film and packaging material manufacturer, stated, "Large suppliers are unilaterally informing us of price increases without any specific pricing criteria or prior consultation. For instance, the price of certain raw materials such as LLDPE has risen from 1.5 million won to 2.8 million won per ton. SMEs lacking financial resources are losing out in the competition to secure raw materials, raising concerns about production disruptions."

Regarding raw material inventory levels, 65.9% of respondents stated they currently hold less than 70% of their normal stock levels, indicating that SMEs have insufficient buffers. Additionally, 36.1% of companies answered that they could sustain operations for "less than one month" with their current inventory.

If the Middle East situation continues for more than three months, the most common planned responses were "Other" (54.2%) and "Reduction of operations" (39.8%). Among the 222 companies that selected "Other," 204 stated they had "no specific plans," meaning that 49.7% of all responding companies have inadequate countermeasures for a prolonged Middle East crisis.

When asked which policy the government should prioritize to stabilize raw material and component supply, the most common response was "Strengthening monitoring of raw material prices and supply conditions" (30.0%). This was followed by "Supporting adjustment of supply prices and implementation of the supply price indexation system" (23.7%), "Supporting the discovery of alternative raw materials and import sources" (17.3%), and "Providing emergency management stabilization funds" (12.4%).

Kim Heejung, Director of Economic Policy at the Korea Federation of SMEs, stated, "Amid supply chain shocks stemming from the Middle East, SMEs are suffering a double blow of production disruptions and financial difficulties caused by unilateral price hikes and supply restrictions from large suppliers. The government must closely monitor the pricing and supply status of large raw material suppliers and agencies, and strengthen oversight to ensure that support for raw material suppliers leads to stable supply for SMEs."

This content was produced with the assistance of AI translation services.