"Bought Raw Materials at 1,500 Won, Selling at 1,300 Won"—Exchange Rate Plunge Casts a Shadow as Export Giants Face Third-Quarter Alarm

Raw Materials Bought at 1,500 Won Sold at 1,300 Won

Margins Cut and Won-Converted Sales Decline

Electronics Parts and Petrochemicals Hit Hard; Automakers Also Feel the Pressure


Semiconductors Face Limited Risk Thanks to AI Supercy

The won-dollar exchange rate has dropped by more than KRW 200 in just two months, raising alarm bells for domestic conglomerates with high export ratios regarding their third-quarter performance. This is because products manufactured with raw materials purchased at a high exchange rate are now being sold after the won has strengthened, resulting in thinner profit margins and a decrease in sales when converted to the local currency.

Expensive Parts and Won Appreciation... Components, Petrochemicals, and Automobiles Hit Hard

According to industry sources on September 15, the electronics components industry, where the export ratio exceeds 90%, is expected to be hit the hardest by the exchange rate decline. The fact that there is now a difference of about KRW 200 between the high-exchange rate period (around KRW 1,500) when components were purchased and the lower-exchange rate period (around KRW 1,300) when finished goods are sold means the companies may absorb these losses in full. A representative from an electronic parts company expressed concern, stating, "Regardless of solid fundamentals, our third-quarter performance could fall far short of market expectations because of the exchange rate." In particular, with sales of Apple’s new iPhone starting this month, suppliers such as LG Innotek, which provides camera modules and other parts, are expected to be significantly affected.

View of the National Industrial Complex in Yeosu, Jeonnam. Yonhap News Agency

The petrochemical industry is also taking a direct hit from the won's appreciation, with export ratios ranging from 50% to 80%. Typically, the industry produces goods using naphtha acquired one to three months in advance, and as a result, products made with raw materials purchased at high exchange rates (around KRW 1,500) must now be sold at lower exchange rates (around KRW 1,300), causing a sharp contraction in margins. In addition, rising crude oil prices and the prolonged war in Iran are increasing raw material costs, which is expected to significantly worsen the third-quarter results compared to the previous quarter. An official in the petrochemical industry stated, "As long as we do not know when the war will end, both suppliers and customers are finding it very difficult to make contractual decisions, whether short-term or long-term," adding, "The business sentiment in the third quarter feels as bad as it did in March and April, right after the war in Iran broke out." Another source highlighted, "The extreme volatility of the exchange rate itself is the biggest factor increasing uncertainty in management."

The automobile industry is also struggling to avoid a potential negative impact on its second-half performance caused by the stronger won. If the exchange rate drops when converting export payments received in USD into won, both sales and operating profits in won decrease, even if the volume of products sold remains unchanged. Between the first quarter of 2023 and the second quarter of this year, Hyundai Motor Company benefited from a KRW 3.7 trillion increase in operating profit, while Kia benefited by about KRW 4.3 trillion thanks to the rising exchange rate. However, if the won's strength persists, the opposite trend could occur.

The impact on the third-quarter earnings of finished carmakers is expected to be limited. Hyundai Motor Company and Kia will be able to record book gains as the won translation of their sales warranty provision liabilities accumulated in dollars decreases due to the lower exchange rate. However, from the fourth quarter onward, this effect will disappear, and the resulting deterioration in export profitability is likely to be fully reflected in their financial statements.

A view of finished vehicles waiting at the storage yard next to the export shipment dock at Hyundai Motor Ulsan Plant. Photo by Yonhap News.

Semiconductors and Steel Breath Easier Thanks to AI Boom and Lower Import Prices

On the other hand, memory semiconductor companies—despite having over 90% of sales tied to exports and facing inevitable exchange losses in the trillions of won—expect performance impact to be limited. This is because the costs of procuring raw materials in dollars have also dropped, and, more importantly, surging demand for artificial intelligence (AI) has driven up chip prices. The current abnormally high operating profit margin is reportedly more than enough to absorb exchange rate fluctuations. A semiconductor company representative commented, "Unlike in the past, through long-term contracts (LTA), we've already sold all of our supply for the next two years, so the exchange rate has minimal impact on overall profit. The increase in AI chip prices more than offsets any losses from currency depreciation," the official said.

The steel industry faces both lower raw material import costs and, at the same time, reduced sales in won for export products due to the falling exchange rate. An official from the steel sector noted, "Given how poor market conditions were in the first half of the year, this will actually help us reduce losses."

Home Appliances, Defense, and Shipbuilding: Hedging Against the Risk

Some companies have minimized the impact of currency fluctuations by preparing in advance. Major appliance manufacturers such as Samsung Electronics and LG Electronics, for instance, have mitigated exchange rate risks by making and selling products directly in overseas markets such as the United States, Vietnam, India, and Mexico. Baek Seungtae, Executive Vice President and Head of Home Appliance Solutions (HS) at LG Electronics, explained at a recent press conference held during Europe's largest appliance and IT exhibition, IFA 2026, "We have regarded variables like exchange rate fluctuations as a constant and have implemented production base adjustments, supply chain diversification, and flexible manufacturing systems."

The defense and shipbuilding industries are dealing with the situation through currency hedging strategies. Defense companies such as Hanwha Aerospace have been maintaining appropriate balances of dollars and won, minimizing swings in their quarterly results. One defense industry source said, "Internal currency hedging policies ensure that exchange rate fluctuations are not directly reflected in our performance, so the current trend of a declining exchange rate is not having a negative effect."

The shipbuilding industry, where overseas sales account for a high proportion of revenues, has also employed proactive hedging to manage profitability. In the case of HD Korea Shipbuilding & Offshore Engineering, the company maintains a consistent hedging ratio for around 75% of its net foreign-currency exposure, and Samsung Heavy Industries operates a policy of 100% hedging through selling forward contracts (a derivative product). While payment in dollars remains dominant, this system limits the impact of currency movements on real business results.

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