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(Seoul=Yonhap Infomax) Myung Sub Byun, Dong Il Joo – The dollar-won exchange rate is hovering near the 1,500 won mark, putting mounting pressure on the profitability of South Korea’s construction sector.
The depreciation of the won is driving up the cost of importing raw materials fundamental to civil engineering and construction, directly impacting the earnings of construction companies, according to industry analysts.
However, firms with a high proportion of overseas construction projects are expected to benefit from the strong dollar.
According to industry sources on the 26th, prices of cement and rebar—core materials at construction sites—are among the most sensitive to exchange rate fluctuations.
Coal, which accounts for about 30–40% of cement production costs, is a prime example. South Korea’s cement industry relies entirely on imports for coal.
When the dollar-won exchange rate rises, the burden falls squarely on construction companies importing raw materials.
Additionally, the cost of most imported materials, such as rebar and finishing materials, increases as the won weakens.
Items with import dependency rates exceeding 50%—including tiles, sanitary ware, valves, marble, and timber—are expected to see even sharper price hikes (see table).
In fact, the Construction Cost Index for September, compiled and released this month by the Korea Institute of Civil Engineering and Building Technology, reached 131.66, up 0.57% from the previous month and marking a record high since the index began.
This surge in raw material prices is pushing up the cost-to-sales ratio—a key profitability metric for construction firms. The cost-to-sales ratio represents the proportion of sales consumed by costs such as raw materials and labor.
An official at a major construction company said, “The rise in the dollar-won exchange rate not only increases the cost of importing raw materials, but also raises labor costs for foreign workers paid in dollars, making operations more challenging.”
If the current exchange rate persists or rises further, most large domestic construction firms are projected to see their cost-to-sales ratios exceed 90% by year-end.
As of the third quarter, Hyundai Engineering & Construction Co. posted a cost-to-sales ratio of 95%, while Daewoo Engineering & Construction Co. recorded around 91%. Samsung C&T Corp., DL E&C Co., and GS Engineering & Construction Corp. reported ratios in the high 80% range.
However, for major builders such as Hyundai Engineering & Construction and the construction division of Samsung C&T, where overseas sales account for over 40% of revenue, the dollar-denominated nature of contracts could lead to increased net profit.
Hyundai Engineering & Construction, with a significant share of overseas sales, maintains a long position in the dollar. Analysis shows that a 10% appreciation of the dollar against the won would boost its net profit by approximately 158.8 billion won ($119 million), as overseas-focused firms see greater net profit growth from dollar earnings.
Nevertheless, sustained exchange rate increases could lead to secondary cost pressures in related industries, posing additional burdens for construction companies.
There are also concerns that firms with substantial foreign currency debt could incur foreign exchange losses.
Park Cheol-han, a researcher at the Korea Institute of Construction Industry, said, “If the exchange rate continues to rise, the construction sector is particularly vulnerable to secondary impacts from cost increases in other industries. The longer the period of exchange rate appreciation, the greater the indirect cost pressures become.”
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