The surge in raw material prices and supply instability caused by the worsening situation in the Middle East are dealing a direct blow to small and medium-sized enterprises. A survey found that 4 out of 10 small and medium-sized enterprises are planning to scale back operations if the situation lasts for more than three months.
The Korea Federation of Small and Medium Enterprises announced on the 2nd the results of a survey titled "Survey on difficulties in procuring raw and subsidiary materials by small and medium-sized enterprises related to the Middle East," conducted from May 15 to 31 on 410 small and medium-sized corporations that procure raw and subsidiary materials. The survey focused on corporations that use products directly affected by the Middle East situation, such as petrochemical feedstocks, nonferrous metals, construction and civil engineering materials, and electrical and electronic component materials.
As for the impact on production activities since the deterioration of the Middle East situation, 94.6% of corporations cited "increased cost burden," the highest share. In addition, 80.7% responded that they are experiencing a "shortage of raw and subsidiary materials," indicating that cost increases and supply disruptions are occurring simultaneously.
A survey comparing average purchase unit prices of major raw and subsidiary materials with late February this year found that 71.9% of corporations said prices had risen by 20% or more. In particular, among corporations using "packaging materials, film, and paper," 31.4% said prices had soared by 80% or more, double the overall average (15.1%), confirming they are facing the most severe cost pressure.
A survey of stockpiles of major raw and subsidiary materials found that 65.9% said their current inventory was "less than 70%" of normal appropriate levels, indicating small and medium-sized enterprises lack sufficient inventory buffers. As for how long current inventories could last, 36.1% of corporations answered "less than one month," it was found.
Regarding response plans if the Middle East situation lasts for more than three months, "other" (54.2%) and "scale back operations" (39.8%) were cited most frequently. Of the 222 corporations that answered "other," 204 said they had "no separate plan," indicating that 49.7% of all responding corporations have no countermeasures for a prolonged Middle East situation.
As the top policy the government should prioritize to stabilize the supply of raw and subsidiary materials, "strengthen monitoring of raw and subsidiary material prices and supply conditions" (30.0%) was most cited. That was followed by "support for adjusting delivery unit prices and utilizing the delivery price linkage system" (23.7%), "support for discovering alternative raw and subsidiary materials and import sources" (17.3%), and "support for emergency management stabilization funds" (12.4%).
On-site interviews conducted after the survey pointed to "unilateral price hikes" and "restrictions on raw material supply" carried out without clear standards as the biggest difficulties for small and medium-sized enterprises.
A representative of Corporation A, a film and packaging materials manufacturer, said, "Large corporations' suppliers are unilaterally notifying price hikes without specific pricing standards or prior consultation." The representative added, "Prices for certain raw materials, such as linear low-density polyethylene (LLDPE), have risen from 1.5 million won per ton to 2.8 million won," and noted, "Small and micro-sized small and medium-sized enterprises with limited capital are being completely pushed out of the competition to secure raw materials, raising concerns about production disruptions."
Kim Hee-jung, head of the Economic Policy Division at KBIZ, said, "The government should closely examine the price-setting and supply conditions of large corporations' raw material producers and distributors, and strengthen monitoring so that support for raw material producers can lead to stable supplies for small and medium-sized enterprises."