Global Adversities and the '4 Highs Crisis'... Business Community Also Activates Emergency Management

Deterioration of Domestic Business Environment Amid Global External Adversities
Major Companies Enter Contingency Mode at Emergency Executive Meeting

An oil pump operating at an oil field located in Bodeua en Brie near Paris, France. (Image source=Reuters Yonhap News)

[Asia Economy reporters Hyunseok Yoo and Chaeseok Moon] Amid escalating global economic uncertainties and the '4-high (high interest rates, high exchange rates, high inflation, high wages)' crisis, major domestic companies in South Korea have entered an 'emergency management' system. This is due to the prolonged Russian invasion of Ukraine, supply chain disruptions and soaring raw material prices caused by the Shanghai lockdown in China, U.S. interest rate hikes, and the compounded '4-high crisis,' all converging to create the worst ordeal. With concerns growing over stagflation?rising prices amid economic recession?in the second half of this year, companies are busy revisiting their management and investment plans set at the end of last year or activating contingency plans to prepare countermeasures.

According to the business community on the 6th, Hanwha Group's petrochemical and energy business units, including Hanwha Solutions, Hanwha Energy, Hanwha Impact, and Hanwha TotalEnergies, held an executive meeting the previous day to review management issues arising from the global economic crisis. The executives acknowledged persistent risk factors such as rising prices of crude oil and raw materials, supply chain and logistics disruptions, and interest rate hikes, and decided to proactively prepare countermeasures. Nam Ihyun, CEO of Hanwha Solutions, stated, "We will closely monitor global energy prices, including crude oil, and supply chain disruptions, and establish emergency plans through stress testing to respond flexibly to rapidly changing international situations."

The chemical and energy industries, facing a fire under their feet due to skyrocketing raw material prices, are on high alert. With international oil prices and key raw materials for electric vehicle batteries rising across the board, companies are focusing intensely on cost reduction. On the previous day (local time), the June West Texas Intermediate (WTI) crude oil futures closed at $108.26 per barrel on the New York Mercantile Exchange, up 42.3% compared to the first trading day of the new year. According to the Korea Resource Information Service, nickel, a raw material for electric vehicle batteries, saw its 3-month futures price on the London Metal Exchange (LME) soar to $32,000 per ton, a 46.5% increase since the beginning of the year. During the same period, aluminum rose 4.4%, lithium 61.6%, cobalt 16.4%, and manganese 9.2%.

The manufacturing sector is putting its life on supply chain management, which is directly linked to cost reduction. So-called 'heavy and chemical' industries such as energy, refining, and shipbuilding are actively reviewing the soaring energy prices and supply chain disruptions. Domestic refiners, who purchase crude oil from the Middle East and other regions and find it difficult to control crude oil premiums or complex refining margins independently, are implementing various practical responses. A representative from a refining company said, "We are expanding price monitoring related to petroleum products and thoroughly reviewing measures such as economically viable crude oil procurement and adjusting product yields by increasing production of diesel and kerosene."

The completed vehicle industry is also in an emergency situation. Hyundai Motor Company has established a dedicated department to respond to rising raw material prices and is conducting continuous monitoring. Seo Kanghyun, head of Hyundai Motor's Planning and Finance Division, said, "We are also closely watching for any additional price increases due to concerns over raw material supply related to the Russia-Ukraine situation."

Some companies are taking drastic measures such as cutting executive salaries. Korea & Company, the holding company of Hankook Tire & Technology, has been reducing the salaries of about 100 executives across all affiliates by 20% since last month. A business community official said, "The key is to respond swiftly to the global crisis to resolve uncertainties. It is also important to thoroughly review all management issues to secure financial soundness."