By Jane Han
Staff Reporter
Global wheat and corn prices fell by almost 35 percent over the past two months, as did freight costs on plunging crude prices.
For CJ, the nation's largest foodstuffs maker that imports most of its raw materials, this meant better profit ― or it almost did until the South Korean won tanked to its lowest value since the 1997-98 Asian Financial Crisis.
The wobbling local currency ended up throwing the company into the red, with a quarterly loss of 25 billion won ($18.5 million) in the July-September period.
The situation was even worse for Korean Air, the nation's biggest airline. Oil prices have shed more than 60 percent from July's record of near $150 a barrel, but this wasn't enough for the flagship carrier, which earlier this month posted a quarterly loss of 684.1 billion won, its worst in 14 years.
Fuel is traded in dollars, so the weakening local currency means the company has to flesh out more won to buy the same amount of fuel.
The two firms are demonstrative of the threatening currency crunch felt by domestic conglomerates as the won, Asia's worst-performing currency, has dropped nearly 40 percent against the U.S. dollar so far this year.
The exchange rate is critical to firms when they import and export goods because the currency transaction alone could directly translate into gains or losses.
For example, if the exchange rate is 1,000 won to the dollar, a Korean company could pay 10,000 won to import a $10 product from the U.S. But if the won's value slumps to 1,400 won against the greenback, it would have to pay 14,000 won for the same product.
The same applies when Koreans buy Japanese goods, as the won shed more than 40 percent against the yen this year.
According to Chaebul.com, a Web site that monitors local companies, Sunday, the falling domestic currency drove 164 listed firms associated with South Korea's top 30 largest conglomerates into losses totaling 10.07 trillion won as of September. This equals about 330 billion won in losses for each company.
At the same time last year, the same companies reaped exchange gains of 123 billion won, it said. Last year's average won-dollar rate was 930 won.
The analysis said the groups' realized foreign exchange losses stemming from their foreign assets and debts are 1.5 trillion won, while those unrealized are estimated at 8.5 trillion won. The heavy loss comes as firms are hobbled by soaring interest rates from foreign bank loans and bonds.
Chaebul.com says Hanjin, the parent company of Korean Air, was the hardest hit, with a currency loss of 1.7 trillion won.
Korea's two biggest oil refineries GS Caltex and SK Energy had their parent companies tangled up in losses of 1.4 trillion won and 982 billion won, respectively. LG Electronics was also a big loser with $1.5 billion in foreign currency-denominated debts.
Companies are expected to be saddled even more in the final quarter, however, as the won-dollar rate now hovers in the 1,400-1,500 won range and won-rate rate in the 1,500-1,600 won range, worse than the third-quarter levels.