Hwang & Co > ::: HWANG & COMPANY ::: Shipbrokers in Korea > Korea Report

Home > Report > Korea Report

Korea Report - January 2005

Author : Hwang & Co Date : 05-02-15 11:17 Hit : 37054

Topics.

-NK opposed the demand to abandon its nuclear program.
-Korean economic growth predicted less than 4% in 2005.
-Korea’s export hit all time high.
-Standard Chartered Plc acquired Korea First bank.
-Met Life bought SK Life Insurance.
-Samsung Electronics’ net profit exceed $10 bil in 2004.
-KWon strengthened to 1025 against USD.
-Unemployment rate for youth reached 8.5% in Dec.
-Korean shipbuilders declared emergency management to cope with expected loss in 2005.
-Steel prices keep rising.
-Post 10,000 TEU containership heated the market.

GOVERNMENT AND POLICY

Confidential documents drawn up between Korea and Japan when they normalized diplomatic ties four decades ago, were unveiled to the public under a court ruling, stirring up long-buried dust on victims of Japan's 1910-1945 colonial rule of Korea. Government’s partial release of its X-files consisting of about 1,200 pages, awakened memories of past victims and their families and incited new claims for compensation to Japanese government as well as Korean.

The main opposition Grand National Party accused China of diplomatic arrogance for man-handling GNP lawmakers who tried to hold a news conference in Beijing about NKorean defectors, and demanded Government to punish Seoul diplomats responsible for Chinese affairs. The US State Department also expressed concern about China's use of force to break up the news conference at a hotel in Beijing on the sensitive subject of NKorean defectors.

Government is to invest KW10 bil to support homegrown innovation in medical biotechnology this year, since it officially permitted to carry out stem cell research on human embryos for infertility treatment purposes starting from Jan 1. The research has been led by professor Hwang Woo-seok, who produced the first cloned human embryos to generate stem cells for therapeutic purposes.
Government plans to generate around KW8 tril in private sector investment next year to develop infrastructure and applications for the broadband convergence network, which is conceived as a massive Internet protocol where people can connect from a wide range of terminals from nearly everywhere, while allowing the overlapping of voice, video and data services, scheduled for trial services next year.
Government is to foster 300 core parts and material companies to make the country one of the leading global suppliers by 2010, postponing mandatory military service for workers at designated companies and finance a part of their university tuitions for continued education.
Government plans to spend massive budget during Feb and March, aiming at reviving the stagnant economy. Government will spend KW1.4 tril to create public jobs and offer vocational training to 461,763 people in 2005.

Indonesia's health officials geared up to go door to door with mosquito-killing spray to head off a looming threat that malaria could kill 100,000 more people in the tsunami disaster zone.
The second animal found to have the deadly mad cow disease in. US officials are sending a team to Canada to evaluate the latest case before deciding whether to change their plan to resume imports.
A 35-year-old woman in southern Vietnam died of bird flu which killed 32 people in Asia last year, increasing the death toll of the disease to 11 in Jan.
614 more Koreans were found with HIV in 2004, the virus which can lead to AIDS, raising the number of Koreans infected to 3,153, 631 of whom have already died.

NORTH KOREA AND NATIONAL DEFENSE

President George W. Bush embarked on his second term in White House, telling the world about the war and terrorism across the globe with the great objective of ending tyranny. Newly appointed US Secretary of State called 6 nations, such as NK, Iran, Cuba, Belarus, Zimbabwe and Myanmar, as outpost of tyranny, which require close observation, and urged united world action to make NK and Iran renounce nuclear weapons.
USA was reported to have set Feb as the deadline for NK to return to the six-party talks over its nuclear weapons program. IAEA chief emphasized that the crisis caused by NK's refusal to abandon its nuclear weapons ambitions is deepening and needs to be resolved as soon as possible, saying that it has been a pending issue for 12 years, which is getting worse.
NK returned to its usual anti-American rhetoric, accusing USA of being a nuclear criminal with double standards, patronizing and cooperating with the pro-USA forces in Israel, Japan and SKorea to develop nuclear arms while pressuring NK to abandon its program. NK declared they would never quit nuclear activities unless the US gives up its policy of war against NK.

The issue of former SKorean prisoners of war resurfaced following reports that a 72-year-old POW recently managed to flee NK but arrested by Chinese police while organizing a safe passage home. He now risks being returned to NK where he is to face severe punishment.
SKorea's humanitarian aid to NK reached $256 mil last year, the largest figure in a decade. The increase mostly comes from an outpouring of donations from local citizens after an explosion in April last year at a train station in Ryongcheon, a town near the border with China. SKorea is estimated to need at least KW700 bil ($683 mil) to deliver on its promise of economic assistance to NK after the standoff over its nuclear program is resolved.
USA paid $15 mil NK between 1996-2002 in return for excavations of the remains of US soldiers who had died in NK during the Korean War.

ECONOMY AND POLICY

Finance Ministry forecasted the growth of Korean economy may slow down to less than 4% this year, because of low consumption and weak corporate investment. It said the government will use all measures to spur investment as it seeks to meet its target of 5% growth in 2005, but if investments do not pick up, growth will slow to the upper 3% range. Korean economy entered 10th largest in the world with GDP of $667.4 bil in 2004.

Korea's consumer confidence slumped to a four-year low in Dec, fell to 85.1 from 86.6 in Nov, suggesting a long awaited recovery in domestic demand may not happen in the first quarter of this year. Local business confidence in Dec was the lowest since Oct 2001, with the index falling to 77.8. The Supreme Court disclosed that the number of new personal bankruptcies quadrupled from 3,856 in 2003 to 14,921 in 2004, a record high.
Korean companies raised KW58.7 tril through direct financing such as stock and bond issues in 2004, down 19.5% on year, as companies had low demand for funds during the economic slump, while Korea’s direct investment in China increased to $6.25 bil in 2004, up from $2.72 bil in 2 years earlier. Korea's investment in foreign property hit an all-time high of $281 mil last year, driven by local companies rush to secure sites and individuals seeking to escape low interest rates and a weak real estate market at home.

Korea's exports hit an all-time high of $254.2 bil in 2004, posting trade surplus of $29.75 bil, about doubled figure of last year. It contributed to more than 90% of the growth for the world's 11th largest economy. Korea's trade surplus surged to $3.2 bil, the highest ever monthly figure in Jan, attributing to robust exports, which soared 18.7% on year to $22.5 bil.
Exports to the EU bloc soared 40.6% last year on year to $34.2 bil.
Exports of digital products grew 29.5% on year to $96.7 bil in 2004. Korea's exports of information and communication technology products reached $74.3 bil in 2004, up 29% on year, driven by the increasing sales of mobile-phones and semiconductors. Korea achieved the biggest trade surplus in telecommunication equipment in 2003 among member countries of OECD, reporting a surplus of $13 bil, followed by Mexico's $11 bil and Finland's $7.2 bil.
Auto and auto parts exports rose 39.6% to $32.6 bil last year, posting auto trade surplus at KW28.4.
Korea's overseas royalty payments surpassed $3.8 bil to $3.86 bil in the first 11 months of 2004, up 18.4% on year, as local companies brought in more IT based intellectual property from abroad.

Prices for raw materials and intermediate goods in Korea rose 11.3% last year on year, experiencing their highest gain in 6 years, due to the soaring international cost of crude oil and other commodities. From the beginning of the year, world's raw material cost start soaring, with Australian coal 119% up with request to double the ore price, indicating difficult year to auto and shipbuilding industries.
Korea imported $2.8 bil worth of crude oil in Dec, 31% up on year, with increased volume of 74.5 mil barrels, up 3.5%. The average price of crude oil, including insurance and freight reports rose 27% to $37.88 a barrel,. Domestic gasoline consumption fell 3.8% on year to 58.12 mil barrels last year, which marks the lowest level since 1995.
Korea plans to double its import surcharge on the fuel by July 2006 to help finance overseas energy projects. Government plans to raise the surcharge on LNG imports to KW21,210 a ton from current KW9,750 through 2 rounds of increases.

Standard Chartered Plc decided to acquire Korea First Bank for about KW3.5 tril ($3.32 bil) from Newbridge Capital, ending months of speculation over the fate of the nation’s eight-largest lender. HSBC Holdings Plc withdrew from the competition reportedly because of changing the target to buy Korea Exchange Bank. Shares in KEB, the nation's fifth-largest lender, put up their biggest gain in 2 months on speculation it may become a target after Standard Chartered Plc bought KFB.
Lone Star Funds raised about $5 bil for its biggest investment fund, for the firm's sixth one in the first half of 2004. The firm plans to devote about two-thirds of the funds assets to Asia, mainly in Korea and Japan, and invest the rest in Europe and the USA. MetLife Insurance is set to buy SK Life Insurance for KW290 bil ($280 mil), taking a 97.4% stake of the company.

Korea's 3 biggest lenders earned more than KW1 tril each in net profit last year. Kookmin Bank wrote KW1 tril, up from KW753 bil in 2003. Woori Bank had a profit of KW1.1 tril, down from the previous years KW1.3 tril, while Hana Bank more than doubled its figure to KW1.1 tril from last year.

Despite the strong slow-down policy of its government, economic growth in China in 2004 posted 9.5%, highest in 8 years, expecting 8% in 2005. Forex reserve in China broke $600 bil level to $609.9 bil. China's trade volume reached $1.16 tril, 35.7% up on year, with export of $593.36 bil, surpassing Japan to be 3rd largest trader in the world, following USA and Germany. Trade deficit in USA in Nov posted $60.3 bil, renewing the record, expecting the accounting deficit at $427 bil. Japan posted trade surplus of JY1/14 tril in 2004, up1.8% on year. Unemployment in Germany increased to 4.7-4.8 mil in Dec, the highest in 60 years.

CHAEBOL

Samsung Electronics (SEC) experienced the largest increase in sales in 2004 among the world's top 5 handset makers, selling 55.7 mil units globally, a 58.9% increase on year. The news that the net profit of SEC exceeded $10 bil last year, has shaken Japanese industries. Some news media accused Japanese companies helped SEC and urged industries to block SEC for Japanese Inc to regain the leadership in the world market. SEC surpassed Nokia, world No.1 mobile phone maker, in market capitalization of $67.8 bil against Nokia's $66.5 bil. SEC became 6th largest patents holder in USA.

LGE has agreed to mint a 50;50 joint venture with Canadian telecom equipment maker Nortel Networks, as a move to strengthen its position in the global mobile telephone market. LGE expanded its successful joint venture with world's leading firms to 12, including LG Phillips LCD, LG Caltex, LG Telecom.
LG Caltex, Korea’s second largest oil refiner, completed the procurement of the land to construct LNG complex for direct import of LNG approved by authority last July. LG Caltex, owns 15% of the mines which ChevronTexaco discovered offshore Cambodia. Chevron Texaco holds 55%, while Mitsui Oil Exploration another 30%.
Finalizing its spin off from LG Group last year, GS Group received permission from the Fair Trade Commission to begin operating as an independent business group, being officially recognized as Korea's 7th largest chaebol.

POSCO has agreed with BHP Billiton and Rio Tinto to pay a lot more for the high-quality Australian coal it uses for steel-making. It will pay $125 a ton for the high-quality coal starting in April, more than double the $57.5 it paid in 2004. POSCO earned a record KW1.19 tril net profit in the fourth quarter of 2004 on sales of KW5 tril. For all of 2004, the company earned KW3.84 tril, up 93.2% on year. Sales surged to KW19.17 tril from KW14.36 tril. It warned further price hike this year, in line with international market trends.
Dongkuk Steel Mill's net profit more than tripled in 2004 thanks to improved profitability from higher steel prices. The company's net income for the year came to KW450 bil, up 245.9% on year, operating profit rose 90.9% to KW493 bil, while sales gained 40.6% to KW3.27 tril.
KOGAS's fourth-quarter net income rose 9.6% on year to KW147.1 bil, as power plants switched the fuel because of record-high crude oil prices. Its sales gained 28% to KW2.82 tril and operating profit fell 1% to KW259.3 bil.

SK Group's exports came to $13.1 bil in 2004, up 60% from 2003, surpassing the $10 bil mark for the first time. It aims to raise overseas shipments to $14 bil this year. SK Group plans to invest KW5 tril this year, a 22% increase on year, including KW4.6 tril in facilities, a 21% increase and KW400 bil in R&D, a 33% rise. SK Corp plans to acquire a 15% stake in a petroleum storage facility of 5.3 mil barrels to be built in Singapore for $200 mil to strengthen its 3 way export ties with China and Southeast Asia from the Singapore terminal, which will provide a steady supply of petroleum products from July 2006.

Hyundai Motor (HMC) won American consumers, just when Detroits big Three thought they had enough of a fight on their hands trying to take back market share form the decades-long onslaught of Toyota, Honda and Nissan Motor. The rollout of the redesigned Sonata is a sign of how tight US auto market could become in the next few years, with the expectation that China will son follow with inexpensive products of its own.
Hyundai Motor (HMC) and Kia Motors together sold more vehicles worldwide in 2004 than Japan's Honda Motor, amid rising demand for their Sonata sedans and Optima compacts in USA and Europe. It became 8th biggest car maker in the world, by selling nearly 3.4 mil vehicles last year, almost 18% more than 2003, compared with 3.16 mil units of Honda’s. HMC has this year earmarked 1,778,000 units for export, 63% of which will be manufactured domestically and the remaining overseas.
Korean rolling stock maker, Rotem, has won an order to export 120 multiple diesel powered rail cars worth $247.89 mil to Ireland, for the delivery of Nov 2006 - Sept 2007.

Hynix Semiconductor overtook Micron Technology as the world's second-largest computer-memory chipmaker during the fourth quarter. Shipments by Hynix of DRAM rose to 226 mil bits during the fourth quarter, compared with 189 mil in the third quarter, while Micron's shipments rose to 223 mil bits from 213 mil. Hynix is supplying flash memory chips for Japanese electronics giant Sony starting this month.
Mosaid Technologies filed a lawsuit at a US District Court in Texas against Hynix and two affiliates for allegedly infringing on 7 patents that involve computer memory chips.

American businesses, losing a whopping $250 bil a year to copyright piracy, are taking the fight against counterfeit goods in Asia to the sources of production, with China at the frontline of the onslaught. US Commerce Secretary accused a Chinese Chery Motors of using pirated proprietary information from GM Daewoo Auto to produce a rival minicar. Last month, GM Daewoo filed a lawsuit against Chery, accusing illegally copying one of its models.

MONETARY AND ECONOMIC INDICES

Korean stock market gradually consolidates its foundation to break 1000 barrier. KOSPI started the month at 893, slumped to 870, then broke 900 first time in 9 months to 905 boosted by the brisk corporate outlook for the IT investment and ended rallying to 932. Deposit to buy the stock exceeds KW10 tril, first time in 8 months. Foreign investors’ dividend remittance overseas in 2004 nearly doubled to $2.5 bil from a year earlier, attributing the increase to foreign investors' growing interest in local blue-chip stocks.
The exchange rate of Kwon started the month at 1038 against USDollar, weakened to 1059 on FRB’s indication to raise the interest rate, strengthened to its lowest level in more than 7 years below KW1,030 and sharply hardened to 1025 a the end. KWon outperformed 10 key currencies against USD in 2004, strengthened to 1035 at the end of Dec compared to 1192.6 a year earlier. Korea’s foreign exchange reserves reached a new high of $199.07 bil at the end of Jan, up $680 mil from last month, for 21 consecutive month expansion.
Korea’s consumer prices rose 3.1% on year in Jan, in line with the governments target inflation rate of 3% level. Korea’s producer prices index grew at their fastest pace last year since the 1997-8 Asian financial crisis, jumping to 6.1%. Import prices index in 2004 rose 10.2% on year at the fastest pace in 6 years due to a hike in oil and other raw materials prices.
Korea’s unemployment rate rose to a seasonally adjusted 3.6% in Dec. The jobless rate for those aged 15 to 29 touched 9 month high of 8.5% in Dec, up 1.2% from Nov.
BOK left its benchmark overnight call rate at the current record low of 3.25%. It cut the rate by a quarter percent twice in2004 in Aug and Nov to prop up sagging economy. The yield for 3 years corporate bond surged from 3.82% at the beginning of the month to 4.53% in the end. Deposits at Korean banks experienced the first-ever annual drop to KW510.1 tril at the end of last year, as interest rates hit rock-bottom levels. Bank lending to the private sector sank to a record low as well.

SHIPBUILDING AND SHIPPING

Korean shipbuilders declared emergency management to cope with expected heavy loss this year, minimizing the production cost and recruit of new employees. Korean yards have won the largest amount of orders in the world, clinching combined orders of 17.3 mil CGT in 2004, the worlds largest and far more than No.2 Japan's 12.2 mil. 3 major yards fix the conservative target for sale this year, equivalent to just one year building volume worth $18.14 bil, ie HHI with $5.5 bil, DSME $4.5 bil and SHI $4.3 bil, expecting tight delivery situation pushed the price further. A contract for VLCC for the delivery of 2008 brought the price at last to $120 mil level.
Prices of steel plates in Korea are forecasted to rise during the first half of this year amid a supply shortage, as Japanese steelmakers are likely to raise export prices of steel plates to $700 per ton from the current $600 a ton during the April-June period. Japanese steel prices climbed to the current level in the fourth quarter of 2004 after rising to $450 in the third quarter from $420 three months earlier.
Following HHI's successful contract for 10,000 TEU container vessel, the battle to secure post 10,000 TEU ship started especially between HHI and SHI, who have already completed their design for upto 12,000 TEU carrier.

HHI delivered a 105,000 ton tanker, named NS Challenger, the first ship built on land instead of in dry dock, to Russia's Novoship. HHI sold $30mil worth of industrial robots to Kia Motors Slovakian assembly plant. HHI and COSCO broke the size record of box ship by agreeing to build 4 x 10,000 TEU vessels. HHI also received orders from Hapag Lloyd for 3 x 8600 TEU, Japan Orix 1 x 35K LPG, Eukor 4 x 6500 PCTC, Novorossiysk 4 x 105K tanker by land construction which will be shared with Samho 2 and 2. HHI secured highest annual orders in 2004, with 126 ships of 9.13 mil GT worth $8.5 bil, holding its backlog of orders stands at 230 ships worth $16 bil.
HMD got the order from Orix for 1 x 2824 TEU, Cido+Yamamura Kisen 1 each x 2824 TEU, Claus Peter Offen 6+14 x 1800 TEU. Hyundai Samho contracted with Eukor to build 4 x 6500 PCTC.

DSME has built and delivered to Exmar a 138,000 cbm capacity LNG regasification vessel, which supplies regasified LNG directly from ship without using storage facilities, especially for meeting small size demands. DSME secured orders from Anangel 1 x 170K BC.
SHI has seen net profit cut back by 67% on year in 2004 to KW50 bil, despite the sales rising 12% to KW4.6 tril. It chalked operating loss of KW109.3 bil. SHI signed the contract with Geden for 2 x 115K tanker and Arcadia 2 x 115K ice 1A tanker.

STX has successfully operated its first skid launching system for a 45K PC. They built the ship in two parts to launch onto skid barge where the vessel is completed into one units. STX agreed with new sister company STX Pan Ocean to build 2 x 45.8K PC. Its order book is filled with 104 units worth $3.2 bil, for about 3 years work load.
Daesun made contracts with Precious Shipping+3 others for 4 x 1040 TEU, Cosmoship 4+2 x 1040 TEU and Josco 2 x 1040 TEU.
Samho got the order from Unicom for 2 x 12.8K chem.

Hanjin Shipping expects sales to rise about 8% this year to $5.6 bil, as the fees for shipping goods from Asia to Europe and USA increase with expanding trade. The company gave a sales estimate of $5.2 bil for last year with estimated operating profit $521 mil.
Korea line posted net profit of KW199.6 mil in 2004, up from KW31.3 bil in 2003. Sales rose 83% to KW1.2 tril with operating profit doubled to KW166.6 bil.
Eukor Line placed new building order for 4 units of PCTC at HHI under its own name for the first time, since its inception in 2002.