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Bulk of Korean firms to face losses if oil price soars to $150

The majority of companies surveyed forecast lower-than-expected profits and facility expenditure cuts in 2022

By Mar 28, 2022 (Gmt+09:00)

1 Min read

Bulk of Korean firms to face losses if oil price soars to 0  

Seven out of 10 South Korean companies predict they will swing to operating losses if global oil prices soar to $150 a barrel, a survey showed on Sunday.

Among the 151 Korean manufacturers polled by the Federation of Korean Industries (FKI), a business lobby group, 70.1% said they will likely turn to the red from the crude oil price point of $150 a barrel.

Already, 13% of respondents are suffering from operating losses at the current oil price of slightly over $100.

The survey was conducted on companies with annual sales of 100 billion won ($82 million) or more between March 7 and 15, shortly after the global benchmark Brent hit a 14-year peak near $140 a barrel.

The average oil price at which they expect to swing to an operating loss is $142. 

All the respondents to the survey, entitled "The impact of surging global oil prices on Korean companies," said they may consider ceasing production at their plants if crude oil prices surpass $200.  

A majority of them, or 76.2%, saw smaller-than-expected operating profits this year due to the surge in oil prices, while planning to scale back facility investments.

They forecast a 5.2% drop in 2021 operating profit on average compared to their initial projections, with a 2.7% cut in planned investment spending.

More than eighty percent of those surveyed, or 84.6%, forecast the upward run in global oil prices to last less than six months.

South Korea relies on imports for all its crude oil needs. FKI called for the government to lower the 3% tariff levied on imported crude oil to alleviate the financial burden on companies.

Last week, veteran commodities trader Doug King told Bloomberg that Brent oil will likely hit $150 a barrel this year due to the supply shock from the war in Ukraine and resilient demand from travelers.

Write to Kyung-Min Kang at kkm1026@hankyung.com
Yeonhee Kim edited this article.
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