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Exporters feel pinch of rising Singdollar
Publication Date : 18-09-2012
Exporters who get paid in greenbacks are feeling even more pain these days as the Singapore dollar scales new heights but consumers are taking the opportunity to shop.
The bleeding has been evident for many months but it went up a notch this week with the local currency hitting a record against the United States dollar of just over S$1.22.
While a stronger Singdollar makes it cheaper to import goods priced in greenbacks, exporters say the main impact comes from having to pay local operating costs in Singdollars.
Paul Ho, chief executive of food flavouring firm Scents and Blends, said the appreciation of the Singdollar had shaved around 8 per cent off profit margins.
Allen Ang, group managing director of Aldon Technologies which supplies components to semiconductor firms noted that his company buys raw materials in US dollars and sells products in US dollars. But its factory operating expenses, which are in Singdollars, amount to around a quarter of revenue.
This forces Aldon to sell a substantial amount of US dollars to buy enough Singdollars to foot factory fees, which results in exchange rate losses, Ang said.
He said the firm had tried to counter the Singdollar's appreciation by switching some of its sales contracts into the local currency.
However, the economic slowdown meant it could not generate enough Singdollar revenue to cover factory costs.
Another firm that has been affected is Watson EP. "We are definitely affected because labour costs are paid in Singdollars," said Joyce Seow, the firm's group business development director.
Watson EP, a contract manufacturer of sound systems and plastics products, earns about 70 per cent of its revenue in US dollars. She said that if the Singdollar continued to strengthen, Watson EP would probably have to review its contracts and adjust prices.
Exporters also have to contend with the greenback's volatility, which makes it difficult for businesses to hedge and predict the direction of the currency.
The Singdollar was above S$1.29 against the US dollar in June, strengthened to S$1.24 in August, weakened to nearly S$1.255 later that month and then appreciated sharply to its current S$1.2287.
Singapore Business Federation chief operating officer Victor Tay said that the volatile movements of the currency are an even bigger worry than its strength.
It is easier for multinational firms to hedge against wild movements but smaller companies may not have the experience to do it and do it well.
"This is a big worry for exporters who operate on razor thin margins of less than 10 per cent," he said.
"If they hedge against the US dollar now, and then in a month's time the Singdollar moves from S$1.20 to S$1.30, their profits will be wiped out completely."
Noting that it was "very difficult" to predict when the Singdollar might weaken, Ang said he had to be careful when using hedging, a complex process, because he had been caught out before and lost money.
For consumers, however, the favourable exchange rate spells only good news for online shopaholics such as legal assistant Kemmy Choo.
"I have been buying regularly online because the exchange rate has been quite low for some time now," said Choo, who spends about S$1,000 a month online on clothes and fashion accessories. If the US dollar weakens from S$1.23 to $1.22, that gives her another US$6 to spend.
Singaporeans planning a trip to the US will benefit from the high Singdollar in the form of relatively cheaper hotels, tour packages food and shopping.
Eileen Oh, head of marketing and communications at Asa Holidays, said that places to consider also include Turkey, Vietnam and Hong Kong where the currencies are pegged to the greenback.