South Korea’s KT&G Faces Mounting Cost Pressures: Imported Tobacco Leaf Prices Double in Four Years, Surpass Domestic Leaves for the First Time in 16 Years

Key Points

Imported tobacco leaves account for 84% of KT&G’s supply.

2024 H1 imported leaf price: KRW 11,000/kg, exceeding domestic price (KRW 10,754/kg).

Import prices nearly doubled in four years due to extreme weather in Brazil and India.

Manufacturing sales cost rose from KRW 1.19 trillion (2021) to KRW 1.52 trillion (2023); cost ratio climbed from 43.2% to 47.5%.

KT&G strategy: global production expansion, stabilizing NTTM costs, reducing processing expenses.

South Korea’s leading tobacco company, KT&G, is facing mounting cost pressures as global tobacco leaf prices surge. The company is heavily reliant on imported leaves, which account for around 84% of its total usage, making it particularly vulnerable to international market fluctuations.

In the first half of 2024, KT&G’s purchase price for imported tobacco leaves rose 8.4% year-on-year, reaching KRW 11,000 per kilogram (approx. USD 8.0). For the first time in 16 years, this figure surpassed the price of domestic leaves, which stood at KRW 10,754 per kilogram (approx. USD 7.8). The reversal marks the end of imported leaves’ traditional cost advantage.

Historically, imported tobacco leaves were a key factor in reducing costs. In 2021, KT&G paid just KRW 5,558 per kilogram (approx. USD 4.0) for imports—roughly half the price of domestic leaves at the time. However, within just four years, the price has nearly doubled, largely due to conditions in major producing countries such as India and Brazil.

In India, prices have climbed steadily for four consecutive years, rising from USD 1.8/kg in 2020 to USD 3.4/kg in 2023. In Brazil, average prices jumped from USD 5.3/kg to USD 6.4/kg, an increase of about 20%. Extreme weather events, including heavy rains and flooding, have disrupted production in these regions. Since tobacco requires about one year of curing before it can be used in manufacturing, last year’s reduced harvests are now beginning to impact the market.

This has directly translated into higher procurement and production costs for KT&G. In the first half of 2024, raw materials procurement (including tobacco and by-products) totaled KRW 201.9 billion (approx. USD 149 million), up 3.9% year-on-year, while procurement of auxiliary materials and packaging rose slightly to KRW 286.1 billion (approx. USD 212 million). Compared with 2021, procurement costs for raw materials and by-products have surged 90.6% and 32.3%, respectively.

Manufacturing costs have also risen sharply. The company’s tobacco manufacturing division reported a cost of KRW 1.19 trillion (approx. USD 881 million) in 2021, which increased to KRW 1.523 trillion (approx. USD 1.127 billion) last year, a jump of 27.9%. The cost ratio climbed from 43.2% to 47.5%. As of the first half of 2024, costs reached KRW 754.7 billion (approx. USD 558 million), up 4.3% year-on-year, with the cost ratio rising further to 49.74%.

To counter these challenges, KT&G announced plans to expand its global production bases in order to strengthen long-term cost competitiveness. The company also emphasized efforts to stabilize spending on non-tobacco materials (NTTM) and reduce processing fees to maintain stable per-pack manufacturing costs. A company spokesperson noted that although imported leaf prices have continued to rise since 2022, the pace of increase slowed in the second quarter of 2024, and KT&G is focusing on supply chain efficiency to mitigate future risks.