Oil Price Drop
Cement manufacturers, shipping companies, and airline companies are benefiting greatly from the recent decline in the prices of raw materials such as bituminous coal and petroleum. The price of bituminous coal, which takes up about 35 percent of cement manufacturing costs, fell from 189,422 won (US$175.74) per ton to 136,076 won (US$126.25) per ton between 2011 and the third quarter of last year.
The domestic cement manufacturing sector’s cumulative losses between 2008 and 2013 reached approximately 1.4 trillion won (US$1.3 billion) due to sluggish domestic demand, the presence of various substitutes, and increase in manufacturing costs. However, the bituminous coal price dropped and the cement price went up by 14,000 won (US$12.99) per ton last year, which allowed the top seven Korean cement manufacturers to record 3.45 trillion won (US$3.2 billion) in sales and 676 billion won (US$627 million) in net profits during the first three quarters of 2014. The latter was at its highest since 2008, and the red ink that continued for four consecutive years in the industry was put to an end.
According to market research firm FnGuide, shipping companies with performances estimated by at least three research firms recorded positive operating profits without exception in the last quarter of 2014, in spite of the negative seasonal factors and the global economic recession, based on different cost-saving efforts. The profits are estimated at 60.2 billion won (US$55.9 million) for Hanjin Shipping, 26.2 billion won (US$24.3 million) for Daehan Shipping, and 10.3 billion won (US$9.6 million) for HeungA Shipping.
Airline companies’ overall profitability is likely to be significantly improved as well, because oil prices account for 30 to 40 percent of their costs. Also, a reduced bunker adjustment factor (BAF) that follows the drop in oil prices is expected to lead to a greater number of customers. The BAF for flights to the Americas and February fell 74 percent from this month to US$15. According to securities companies, Korean Air’s and Asiana Airlines’ operating profits are estimated to exceed 840 billion won (US$779 million) and 520 billion won (US$482 million) this year, assuming a WTI price of US$55 per barrel.