As the won-dollar exchange rate topped 1,470 won for the first time in seven months, construction companies are letting out deep sighs. When the exchange rate rises, the price of construction materials procured through imports goes up, increasing the expense construction companies must bear.
According to the Seoul foreign exchange market on the 15th, on the 13th the won-dollar exchange rate closed at 1,471 won, up 1.5 won from the previous trading day. It is the highest level in seven months since Apr. 9 (1,472 won). Although verbal intervention by the foreign exchange authorities on the 14th pushed the won-dollar rate lower, it remains elevated.
Domestic construction companies warned that if the upward trend in the exchange rate persists, higher prices for imported materials will make increases in domestic construction costs unavoidable.
An official at a major construction company said, "The won-dollar exchange rate has its ups and downs, but it is maintaining a high-rate trend in the 1,400-won range," adding, "If the value of the won keeps falling, the price of materials imported from overseas for domestic construction sites will rise, and in the end the construction cost ratio (cost-to-construction expense ratio) will climb further."
Another official at a major construction company also explained, "In the domestic market, construction workloads have fallen sharply due to a slump in the construction economy, so the exchange rate rise will not have a significant immediate impact," while adding, "If imported material prices keep rising in the long term, the expense needed for construction will increase, and compared with the construction revenue companies receive, the expense they must bear will grow, which could lead to higher construction costs."
According to the monthly construction market trends released on the 12th by the Construction & Economy Research Institute of Korea (CERIK), as of September this year the import intermediate goods price index for construction was 121.8, up 4% from September last year. The import producer goods price index also rose 4% to 121.8.
Domestic construction expenses are also hitting a record high due to rising material prices and labor costs. According to the Construction Cost Management Center of the Korea Institute of Civil Engineering and Building Technology (KICT), the construction cost index in September rose 0.57% from August to 131.66. This is the highest monthly figure since the survey began.
Prices tied to raw materials are generally on the rise, including electric wires and cables (2.36%), cold-rolled steel (1.3%), employee compensation (labor costs, 1.14%), industrial gases (1.09%), and concrete products (1.04%).
If the high exchange-rate trend continues, there are projections that imported material prices will jump sharply when construction volumes are expected to increase from the second half of next year.
Park Cheol-han, a research fellow at CERIK, analyzed, "As the contraction of the domestic construction industry deepens, volumes themselves have fallen, so even though import material prices have risen, the expense burden felt by construction companies is not yet significant," while adding, "When construction volumes decline, most firms handling imported materials tend to reduce inventories, but from the second half of next year, when construction volumes are expected to increase, a 'supply-demand mismatch' may emerge with strong demand but insufficient supply, causing imported material prices to surge."