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Korea Report - September 2006

Author : Hwang & Co Date : 06-10-09 13:06 Hit : 39044

Topics.

-President Roh had chain of summit in Europe and USA.
-Shinzo Abe, Japan’s new PM, started efforts to resume diplomacy with neighbors.
-3 way talks set most controversial items in labor movement.
-Government shut down public servants union offices.
-Government’s initiative to regain wartime troop control from USA strikes the rocks.
-Korea’s stake in IMF raised.
-Foreign Minister Ban became a favorite for UN Secretary General.
-Prosecutors continue the investigation on Lone Star’s procurement of KEB.
-Korea’s current account deficit widened, while export soars.
-Hyundai increase its popularity in global car market.
-Plant orders increased substantially on the back of booming oil industries.
-Kwon exchange rate against JYen dropped below 8.1, first time in 21 years.
-Big 3 yards expect to surpass $10 bil each in NB orders this year.
-HHI increase the import steel from China.

GOVERNMENT AND SOCIETY

Korean President Roh Moo-hyun and Greek President Karolos Papoulias held a summit in Athene to conclude agreements to enhance cooperation in marine transportation, port service and establishment of Eastern Europe-Asia sea lanes. President Roh visited Greece for the first leg of his 14-day swing through 3 European countries, ASEM meeting and USA.
Finnish PM Matti Vanhanen, whose country holds the EU’s rotating presidency, met with President Roh at a summit in Helsinki ahead of the two-day ASEM Meeting, to seek the way to improve their trade ties. European Commission, which negotiates trade deals on behalf of EU, is currently seeking a mandate from its members to reach a FTA agreement with Korea.
The leaders of Korea and Germany agreed to strengthen cooperation in trade, investment, information technology and science, in the summit meeting held on the sidelines of the sixth ASEM. Korean leader asked Germany to play a constructive role to ensure peace and stability on the Korean Peninsula, with German expressing full support.
President of Korea and France agreed, during a summit on the sidelines of the sixth Asia-Europe Meeting Summit, to widen bilateral cooperation in the fields of economy, trade and diplomacy. 2 leaders also agreed to cooperate in finding a reasonable resolution to Seoul's long-held demand to return a collection of Korean royal texts looted by France in the 19th century. France seized 297 texts from a Chosun Dynasty royal archive in 1866. They are now being kept at France's National Library in Paris, but Seoul wants them to be returned.
Roh also held separate summit talks with the PM of the Slovak Republic and PM of Denmark to discuss issues of mutual concern. In a keynote speech at the ASEM summit, Roh proposed setting up a multilateral security regime for Northeast Asia similar to confidence-building actions in Europe.

Presidents Roh Moo-hyun and George W. Bush's summit talks in Washington ended with reaffirmation of their alliance and a commitment to solve NK's nuclear standoff together. During 2 hours talk, 2 leaders agreed that Washington remains committed to the principle of peacefully resolving NK's problem through the multiparty talks. Despite the overall amicable mood of the summit, 2 leaders' perception of NK continued to appear amiss. Contrasting with Bush's implications that the success of the six-party talks are contingent on NKorean efforts, Roh refused to entertain the prospect with further sanctions against NK. The leaders also confirmed their commitment to the ongoing FTA talks and other economic ties including the visa waiver for SKoreans for which Bush strongly supported. Roh's summit with Bush was the sixth of its kind, since he was inaugurated in Feb 2003.

Three-way talks between labor, management, and government agreed to put on hold two of the most controversial measures - dropping full-time union officers from company payroll, and permitting multiple trade unions at a single company - for 3 years until the end of 2009. The compromise was made ahead of the government's plan to reveal the final version of the labor reform bills aimed to modernize the labor-management culture to go into effect from next year. The moderate Federation of Korean Trade Unions represented the labor side at the Tripartite Commission negotiations, without participation of the Korean Confederation of Trade Unions, a radical labor group of 2 umbrella labor unions. The KCTU called for an immediate implementation of the multiple union system and insist that the issue of payment for full-time union officers should be left to the workers and management at each individual company, and threatened to stage a mass protest next month against the agreement over labor reform bills, condemning the compromise as "illicit collusion" that would weaken the rights of workers.
The government shut down the offices of the Korean Government Employees' Union, an illegal public servants' union, forcibly pulling union members out of over 140 places nationwide. The order came as the union refused to register as a legal entity. The KGEU is one of 2 labor unions representing low-level government workers. Opposing the new law, the KGEU has been demanding the government grant labor rights to hold strikes and scrap the prohibition against high-ranking officials from joining the union. Refusing to follow orders to vacate the offices, members of the KGEU continued to stage demonstrations, with radical civic groups and legal experts supporting their opposition.

Japan's new cabinet under Shinzo Abe was launched, following his election as the head of the ruling Liberal Democratic Party. His major aspirations are to revise the Peace Constitution, aimed at heightening Japan's military strength and confirming the nation's self-defense troops are constitutional. The move is consequently met by anxiety from Korea, China and other Asian nations that have experienced the brutality of Japan's imperialism in the past. Another of Abe's ambitious foreign policy goals is to become a permanent member of the UN Security Council, which his predecessor failed to do and which is vehemently opposed by other Asian countries. Abe is also likely to push for summit talks with 2 of its most hostile neighbors, Korea and China. Abe has staunchly supported Koizumi's controversial visit to the Yasukuni Shrine, but he did not make clear of his position whether he will go or not. At 52, Abe became the youngest leader of Japan in more than 60 years.
Korean Foreign Minister said that summit meetings with Japan can resume as soon as Shinzo Abe, "squarely" addresses the history issue. Korea and China have been particularly disconcerted by Japanese leaders' visits to the controversial shrine. President Roh and Japanese PM Abe are scheduled to attend the Asia-Pacific Economic Cooperation summit in Hanoi in Nov, when 2 leaders can meet to talk the regional cooperation for resolving NKorean nuclear standoff.
US House of Common condemned the Japan PM’s controversial visit to Yasukuni Shrine comparing the action to present the flowers to Goering’s tomb. It also accused Japan’s education system which teaches student of WWII as the holy act to protect Asia from western invasion, boosting the bankruptcy in national moral.

Korea and USA began their third official round of free trade agreement talks in Seattle, with Seoul's 218-member and Washington's 98-member delegation for 4 days in an attempt to narrow differences on sensitive trade issues. Agriculture emerges as the most contentious issue. Seoul is to make sure to exclude rice from the deal, while USA is demanding the inclusion of all agricultural goods and opening up of the market. In addition to the sensitive agricultural goods, Seoul faced the challenges of responding to irksome US demands concerning the financial sector, especially the state-run banks such as the Korea Development Bank, the Exim Bank of Korea, and the National Agricultural Cooperative Federation, as well as the national Post Office, are the obstacle to Washington.
Korea resumed imports of US beef, allowing American beef to re-enter the market after a nearly three-year ban, when the National Veterinary Research and Quarantine Service approved of 36 meat-processing facilities in USA.

Foreign Minister Ban Ki-moon was once again named a favorite to become the next UN Secretary-General in a straw poll conducted among UN Security Council members, receiving 13 votes in favor, one against and one abstention. It was his third consecutive straw poll win as the successor to outgoing Secretary-General Kofi Annan. The recommended candidate will be officially appointed to the post at the UN General Assembly, at around the end of Oct. Ban, a career diplomat, was appointed as Korea's candidate last year for his dedication, professionalism and international acclaim. Following Ban was Shashi Tharoor of India, a UN undersecretary-general, Latvia's President Vaira Vike-Freiberga and Thailand's DPM Surakiart Sathirathai.
The Foreign Ministry's Director-General for International Organizations Kang Kyung-wha has been appointed the new deputy for the UN Office of the High Commissioner for Human Rights. The post is equivalent to an assistant secretary-general in the UN. Kang, 51, holds a Ph.D. in intercultural communications from the University of Massachusetts.

The adult male smokers dropped to 45.9% in Sept from 49.2% in March, when the figure was for the first time lower than 50%, due to a steep rise in prices of cigarettes and a stringent anti-smoking campaign. Since the new taxes in Dec 2004 raised prices by KW500 per pack, the overall smoking rate declined 11.9%. The percentage of adult male smokers was a notoriously high 79.3% in 1980.
Over the past decade Korea has made significant progress in fighting breast cancer, achieving a more than 80% recovery rate among patients due to improvements in medical technology and early detection. 83.5% survived 5 years after first discovery, and 76.6% survived 10 years. Korea now ranks as the nation with the highest breast cancer survival rate in Asia along with Hong Kong.

Muhammed Yunus of Bangladesh, who established a special bank for the poor, was named as the winner of the 2006 Seoul Peace Prize for his relentless efforts to fight poverty in his home country, benefiting 6 mil people and presenting new model to get rid of poverty. The award will be given in Seoul on Oct 19 with $200,000 prize. The award is given every 2 years, since the successful completion of 1988 Seoul Olympic.
Lee Sun-hwa won the rookie award in LPGA, keeping Korean rally on the occasion, after Pak Seri in 1998, Kim Mihyun 1999, Han Hee-won 2001 and Ahn Shi-hyun in 2004.

NORTH KOREA AND NATIONAL DEFENSE

A group of more than 700 intellectuals, the 160 former diplomats, including former foreign ministers and even some 20 lawmakers of the ruling Uri Party joined their hands in opposing the Roh administration's initiative to regain wartime troop control from USA, insisting that Korea's takeover of wartime command would drive the country into security pitfalls and more time is needed to prepare national defense capabilities and gather more public support, urging the government to be "prudent".
The commander of US Forces Korea said Korea can take full-time operational control of its troops by 2009, emphasizing that, after Korea recovers wartime operational control from USA, UN Command rear headquarters located in Japan will provide unchanged logistics support to Korea, dismissing speculation that Washington could dismantle the UNC along with the Korea-US Combined Forces Command. The UNC has been an axis for the peace and stability on the Korean Peninsula along with the CFC since the 1950-53 Korean War. The UNC oversees a compliance with the Armistice Agreement on the peninsula and supervises two transportation corridors through the Demilitarized Zone.
Korea and USA signed a road map for the alliance readjustment during the 10th round of Security Policy Initiative talks in Washington, wrapping up their two-year-long "Joint Vision Study." 2 countries failed to agree to set a time frame for the changes in command. Seoul hopes to take back wartime control by 2012 while Washington sees 2009 as more appropriate. To develop the alliance, they showed a 2 stage plan in conjunction with South-North relation, from reconciliation and cooperation to peaceful coexistence. During the first stage for 2 Koreas to expand bilateral exchanges and build up military confidence, USA will support SKorea's lead in containing NKorean aggression. In the second stage, SKorea will take a greater role in its defense and prepare for transforming the armistice accord with NK into a peace treaty. In the meantime, the allies will still maintain joint alertness against possible threats from NK. The road map will be presented at the upcoming annual meeting of the Korean and US defense ministers scheduled for Oct 20 in Washington.

President Roh discussed joint measures with US President Bush for reviving the stalled six-party talks and bringing NK back to the negotiating table, during a summit at the White House. Roh has persisted in engaging NK, keeping his persistent calls for "dialogue" as the best diplomacy for dealing with Pyongyang and bringing it back to the six-party talks, despite military provocations including NK’s latest test firing a set of ballistic missiles. But US move to financially isolate the North recently gained speed, as 24 international banks have voluntarily halted business with NK, while SKorea is anxiously requesting Washington to end its investigation into Banco Delta Asia as soon as possible. Washington reaffirmed its commitment to increase sanctions against NK, despite Seoul's request.
USA has had some success in limiting NK's export of missiles by persuading other countries not to buy them. Yemen committed not to buy more NKorean missiles after taking delivery of a shipment of 15 Scuds in 2002 and Libya promised to forgo NKorean missiles as part of a 2003 agreement in which it abandoned its weapons of mass destruction and missile programs. Pakistan and Egypt also are no longer buying from Pyongyang, leaving Iran and Syria as the major missile customers.
In a speech to the UN General Assembly session, NKorean Vice Foreign Minister said although his country wished to return to the six-party talks, it was Washington that was blocking the way, by its financial sanctions.
The World Food Program estimated that NK's food shortage has reached 800,000 tons this year, assuming NK needs at least 5.3 mil tons of rice each year. This year's shortage is mainly due to lower food production after floods this summer, fewer imports from China and SKorea's suspension of its food aid, after missile test firing.

The government endorsed a KW24.7 tril defense budget for next year, up 9.7% from this year, to push for military buildups ahead of the transfer of wartime operational control to Korea from USA. The ministry plans to spend 27.6% of the proposed budget to boost current defense buildup projects and begin new ones, up from this year's 17.5%.

ECONOMY AND POLICY

The Finance Ministry forecasts a 5.1% GDP growth this year on the back of a turnaround in private spending, but predicts the growth rate could slow to 4.6% next year. The Asia's third largest economy grew 1% in the second quarter on year, which further fanned optimisms in the market. Chinese economy has expanded nearly 11% on year in the first half.
Foreign institutions increasingly share a gloomy economy outlook for Korea as the export-driven economy faces growing downward risks amid cooling demand from USA and China. Deutsche Bank lowered Korean economy growth rate to 4% in 2007 from its previous 4.3%. Warning that the Korean economy is losing steam faster than expected, Citigroup revised down the growth forecast for 2007 to 4.3% from 4.7% last month.

The budget for 2007 will rise about 7% from this year to KW239 tril next year, as the nation plans to spend more on social welfare, defense and education. The budget draft is based on the forecast that Korea's real economic growth rate will stand at 4.6% in 2007.
Korea's national debt is expected to surpass KW300 tril next year compared to KW283 tril this year, as the government looks to spend more for social security and defense systems. Seoul plans to float national bonds of around KW9 tril next year in a bid to plug the budgetary deficit. It has also set a $14 bil ceiling on bond issuance to stabilize the foreign exchange market. If the stronger KWon prompts the central bank to float bonds to buy US dollars, the national debt would accordingly increase. The current national debt amounts to around one-third of the nation's total output.

Korea's exports soared 22.1% in Sept on year to $29.9 bil, posting a record gain driven by a pickup in sales of cars, steel and chips. Robust exports has helped to offset a significant slowdown in economic growth amid weakening domestic consumption and sluggish construction demand. High oil prices and a strengthened KWon have threatened to curb growth in Korean economy. Exports which account for about 40% of the country's economy, are expected to help achieve 5% growth this year after expanding 4% last year. Imports climbed 22.8% in Sept on year, resulting in a trade surplus of $2 bil. Korea’s information-technology exports exceeded $10 bil in Sept, backed by peak seasonal demand for chips, mobile phones, flat panels and digital TVs. IT exports rose to $10.74 bil, up 16.6% on year. Imports rose 9.6% to $5.3 bil, bringing the Sept trade surplus to $5.43 bil. The current account deficit reached $508.1 mil in Aug, compared with a shortfall of $392.7 mil in july. The gains come as the country's account deficit widened as increased number of people traveling abroad during the peak summer season. Korea's service account deficit totaled $13 bil last year, ranking second among 37 major economies.
Korea's industrial output jumped 10.6% on year in Aug on the back of brisk exports and the end of labor strife at local automakers. Carmakers have spearheaded the faster-than-expected rebound with a 13.8% on month growth. Factories have also stepped up operations to an average of 80.7% of capacity in Aug, compared with 76.8% in July.

The IMF reform bid was agreed by the 24-member executive board, spelling out changes to its voting system to boost the rights of 4 countries, such as Korea, China, Turkey and Mexico. Korea will see its voting right nearly doubled to 1.35% and the expanded quota more accurately represents the actual portion of Korean economy in the world, raising the rank from 28th to 19th among the institution’s 184 member countries.

Korea’s top lender Kookmin Bank has raised $250 mil in a syndicated loan, consisting of 2 tranches, 2 year debts of $100 mil and 3 year of $150 mil.
Lone Star expressed last month that the fund may walk away from the KEB sale if the transaction fails to be closed by Sept 16, as a consequence of the ongoing investigation by public prosecutors. Lone Star bought a 50.5% stake in KEB for KW1.4 tril in 2003, making its profit well over $4 bil, should the transaction go thorough as planned.
Prosecutors have started tracing the bank accounts of former Finance Minister Jin Nyum over his alleged involvement in the 2003 sale of KEB to Lone Star Funds. After retiring from the post, he sat on the advisory board of Samjong KPMG, an accounting company that provided services to Lone Star Funds. Prosecutors have been investigating Lone Star since April on suspicion of breaching the foreign exchange law and tax evasion. Concluding a five-month-long probe, the Financial Supervisory Commission was asking prosecutors to determine whether KEB manipulated the share prices of KEB.
Kookmin Bank began talks with Lone Star Fund to renew a contract for the acquisition of KEB signed in May. People familiar with the situation say 2 sides have reached an agreement to extend the contract by another 3 months. The acquisition can only be completed after state prosecutors conclude their ongoing probe into Lone Star's purchase of KEB in 2003.

In a forum on foreign currency reserves management hosted by BOK, former Harvard University president Lawrence Summers advised that massive accumulation of reserves in developing nations mirror drastic changes in the global financial system in what he describes as a "great irony of our times", because the flow of capital is very substantial from poor countries to the world's richest. The participants of the forum shared the view that a rapid increase in Asian reserves is the main cause of the global imbalances, between hugh US current account deficit and the large surpluses of Asia's developing economies. Korea, Japan and China hold almost half of the global reserves. Summers indicated the proper level of forex reserves are about 3-6 months income. For Korea’s case it would be $75-150 bil level, as monthly income is around $25 bil. Korea’s reserve hit $227 bil as of end Aug.

MBK Partners and Hyundai Capital Services are jointly buying into the HK Mutual Savings Bank, the nation's third largest mutual savings bank, with KW2 tril in assets and 13 branches across Korea. MBK Partners, a private equity fund run by the former Carlyle Group executive will buy a 39.9% stake in the bank, which will cost KW80.2 bil. Hyundai Capital Services, a unit of Hyundai Motor, will buy an 18.5% stake for KW37.2 bil. The transaction is yet to be approved by the financial regulator. HK Mutual had once been the best-rated mutual savings bank in the nation, but after it spun off from Hansol Group, the bank faced financial difficulties and conflicts within the management.

CHAEBOL

Kim Geun-tae, chairman of the ruling Uri Party, reiterated his plans to support the nation's conglomerates, emphasizing the nation should back the chabols which have contributed to the growth of the economy, abandoning his previous center-left stance, suggesting business-friendly measures such as lifting limits on cross-shareholding among affiliated companies and protecting their managerial rights from hostile M&A bids. In return, the party, facing lowest popularity ratings, asked businesses to show commitment toward investment and employment under a so-called its New Deal policy.

Samsung Electronics (SEC) has developed new flash memory technology, setting the stage for groundbreaking digital gadgets that come with bigger storage and faster speed, unveiling the world's first 32-gigabit NAND flash memory chip based on 40-nano technologies. It has continuously doubled the chip's storage capacity since its launch in 1999 with 256 megabits. The 32-gigabit NAND flash memory chip means a 200% increase in storage capacity from the previous chip SEC developed last year.
Korean chip makers SEC and Hynix are rushing to increase production of NAND flash chips based on 60-nano technologies, as demand for the non-volatile memory chips increases. NAND chips are widely used in digital cameras, mobile phones, USB flash drives and music players. SEC plans to expand its proportion of 60-nano NAND chips from the current 50% to 75% in the fourth quarter. Hynix expanded its proportion of 70-nano NAND chips from 20% in the first quarter to 50% in the second quarter. Samsung accounts for 53.4% of the global NAND flash market, followed by Toshiba with 22.1% and Hynix with 12.8%.
SEC and SK Telecom (SKT) unveiled a new global roaming phone with a price tag of around KW500,000, which can function in 90 countries worldwide. The gadget smartly translates Korean into English, Japanese or Chinese. The operator plans to offer free text message services in GSM areas until Oct.
LG Electronics (LGE), Korea's second-largest electronics manufacturer, has built its first consumer electronics plant in the suburbs of Moscow, in a bid to better tap the fast-growing Russian market, expecting to produce about 500,000 units of flat TVs, 700,000 washing machines, 200,000 refrigerators and 260,000 stereos. It aims to expand the capacity of 4 major items to one mil units, respectively, by 2008.

Hyundai Motor (HMC) and its affiliate Kia Motors saw their vehicle sales edge up in Aug in the USA market, rising 6% on year to reach 44,635 units. HMC has won an order from Iran worth about $227 mil to supply 13,450 complete vehicles to Iranian government agencies and taxi operators. HMC, which runs a plant in Iran that re-assembles car parts into completed models, expects to rack up another 8,500 unit order in 2007.
HMC Group is facing a turning point in the global market as key players such as GM and Ford Motor are considering link-ups with rivals to strengthen their positions in the crucial US market. In the 1980s, GM commanded a 43.3% share in the US market, then declined to 33.5% in the 1990s and fell further to 25.8% recently, while Hyundai dramatically increased their presence there. GM is now in talks with Renault and Nissan for a possible alliance and is now taking steps to repeat what HMC has undertaken to succeed, increasing its warrantees to 5 years or 100,000 miles on all 2007 models. HMC group's bold offer of a 10-year warranty dramatically attracted customers to buy Hyundai cars at a steady pace.
Hyundai-Kia, the world's sixth largest automotive group, has increasingly won global reputationon their quality. Tucson sports-utility vehicle and Kia Motors' Pride sedan had the best initial quality among compact multi-activity vehicles and subcompacts cars. Hyundai's Sonata was chosen last year as the most reliable vehicle by US Consumer Reports. The Hyundai brand value surged 17% on year to $4.1 bil, becoming one of the "five biggest gainers" with Google, Starbucks, E-bay and Motorola. Overall, Hyundai ranked as the world's 75th leading brand, climbing 9 steps up from last year when it made a debut on the "Best Global Brands" list. Hyundai and Kia came 10th and 16th in the German customer satisfaction listings, trailing mainly Japanese competitors.

Korea expects to win at least $22 bil in industrial plant orders abroad in 2006, up 39% on year, thanks to increasing energy projects. Korean companies have won $16.4 bil worth of plant orders in the first 8 months of this year, up 74% on year and already exceeding the $15.8 bil in orders in all of 2005.
Hyundai Engineering & Construction (HE&C) won a $777 mil contract with Foster Wheeler for the gas treatment facilities from Saudi Aramco, with daily production capacity of 550 mil cft gas and 70,000 barrel of LNG.
Korea Electric Power Corp (KEPCO) has completed its biggest pumped-storage hydroelectric power station in the east coast after 10 years of construction, at a cost of KW932.4 bil and is capable of generating a max of 1,000 megawatts of electricity an hour.
POSCO signed a MOU with the state government of Tamaulipas in Mexico to build a Mexican plant to produce steel sheets for the regional car manufacturing industry. The new facility, slated to begin operations in 2009, will have an annual production capacity of 400,000 metric tons. The region's annual supply of galvanized steel sheets for cars is only 300,000 tons while demand in Mexico and the southeastern USA amounts to 1.6 mil tons.
POSCO Engineering & Construction has signed a $370 mil contract with Chilean AES Gener SA to build a coal fired power station with a generation capacity of 240 megawatts, which will be completed by the end of 2009.

Doosan Heavy Industries and Construction, the world's largest builder of desalination plants, agreed to build a plant in the Dung Quat industrial enclave in Vietnam to produce desalination and heat generating equipment for the Middle Eastern and Southeast Asian markets from early 2009. The new production plant is scheduled to break ground in 2007. Doosan decided to invest KW136 bil to set up a new Vietnamese corporation.
Doosan Infracore plans to triple European production of excavators to 5,000 units per year by the end of 2007 to meet the region's fast-growing demand, surging more than 30% every year. It commands 8% of the European excavator market and posted an average sales growth of 14% in Europe since 2001. Doosan Infracore Europe aims to push up sales by 15% to 310 mil euros this year and double it in 2010, eventually becoming one of the world's top 5 construction equipment makers.
Doosan signed the contract with General Electric to supply electric generating plant worth KW177 bil, which will be completed by Dec 2008.

Hyosung Corp, the world's largest tire cord maker, agreed to supply tire cords worth $3.2 bil to the Goodyear Tire & Rubber. Hyosung has taken over 4 tire cord plants in USA, Brazil and Luxemburg from the US biggest tiremaker, in the hope to extend its global operations into Europe and the fast-growing South American market. Hyosung signed a contract with Michelin to supply the polyesther tire code for 7 years worth $350 mil in 2002 and steel code last year for 10 year worth $650 mil.
Dongkuk Steel Mill is to bolster its alliance with JFE Steel of Japan and build a KW760 bil plant in the western coastal city of Dangjin to produce high-end steel plates. The nation's third largest steelmaker agreed to extend cross shareholdings, receive technological support for the new plant and purchase slabs from its Japanese partner on a long-term basis. Dongkuk will buy shares worth JY10 bil in JFE Holdings, while JFE Steel raises its stake in Dongkuk to 15% from the current 4.09%.

MONETARY AND ECONOMIC INDICES

Korea stock price index started the month at 1356, slumped to 1328, fluctuated between 1348-1374, once surpassing 1370 for the first time in 4 months, thanks to falling oil prices, and ended at 1372. The foreign stake in the Seoul bourse has fallen toward 37% level for the first time in 3 years. They brought down the market cap in the Korean stock market to 37.9% as of Sept 14 from 44.14% in April 2004. This year alone, foreigners discarded KW8.56 tril worth of Seoul shares, as their preference laid for safer asset categories. The merit of undervalued Korean stocks has much faded now.
KWon has been strengthened through the month from 960 to 946 against USDollar, driving KWon below 950 for the first time in 2 months. Goldman Sachs raised its six-month exchange rate outlook to KW950 per USD from a previous KW890 and one-year rate forecast to KW925 from KW875. The exchange rate of Kwon against JYen dropped below KW810 against JY100, first time in 21 years, serving hard blow to Korean exporter against Japanese rival. The Foreign Reserves climbed by $1.20 bil to $228.2 bil in Sep.
BOK held its benchmark interest rate unchanged at 4.5%, trying to assure that Korea’s economy is still growing modestly. The US Federal Reserve the key interest rate unchanged at 5.25% for a second month. The yield on 3 years corporate bond has kept lowered in the box 5.06-5.11-4.89%. The yields fell to the lowest in almost a year as the latest BOK’s data fueled concerns that economic growth may slow.
Consumer prices jumped 2.9% in Aug on year, the largest advance in 15 months. BOK warned the inflation rate could surpass 3% by the year end. The nation's jobless rate remained unchanged at 3.5%, a level it has maintained over 3 consecutive months.
Dubai crude price dived from $65.34 to $55.38 per barrel and returned to $58.16 at the end of the month. It was first time in 5 month to see the price below $60 thanks to rising stock of oil in USA, but the price rose sharply to $58.1 by the OPEC’s comment that it may reduce the production to keep the prices up. The price of Dubai crude oil, Korea's benchmark, has recently dropped 22% after surging as much as 34% in Aug.

SHIPBUILDING AND SHIPPING

This year's shipbuilding exports are projected to surge 24.1% to surpass $20 bil for the first time in the history. The shipbuilding sector is likely to record $19 bil surplus, about 70% of the nation's total trade surplus this year. They are expected to build 11.23 mil CGT this year, up 10% on year. They have received new orders for 1,083 ships worth $86.7 bil in 8 months. All of the Big 3 are expected to surpass $10 bil in new building order this year for the first time, reflecting booming global market. DSME has already $9.7 bil and HHI got $9.3 bil by Sept, and SHI has already reached $10.1 bil in Aug.
KOEXIM Bank decided to support Hanjin Shipping for its new building program of 5 x 10,000 teu container ships with structured financing.

HHI secured orders from CMA-CGM for 8 x 11,400 TEU, Kristen Navigation 1 x 160K tanker, Teekay Shipping and Minerva Marine 2 each x suezmax tankers, Centrofin 2 x 159K suezmax tankers, Novoship 4 x 112K tanker and Conti Reederei 2 x 115K coated aframaxes and Geogas 1+1 x 22.5K fully refrigerated LPG. HHI signed LOI with UAE’s ADMA－OPCO to build 3 x fixed platform with pipeline worth $1.6 bil in Umm Shaif Oil Field to produce 300,000 barrels crude and 1 bil cft natural gas when complete in 2010. HHI won the project for Spain Solar Park to supply first stage Solar Power Plant worth $50 mil, consisting 10,000 modules of 200w units.
HHI made a deal with Jiangsu Shagang Group to buy 180,000 tonnes of steel plates from China, cutting down on more expensive Japanese material. HHI is to increase Chinese volumes to 700,000 tonnes next year, out of 3.2m tones of its annual requirement. HHI said Chinese product is cheaper and the quality has much improved recently. The group has negotiated with Japanese suppliers, who are quoting $680 per tonne from October, while HHI wants to pay $480.
HMD got the orders from Eletson for 4 x 35K LPG, Rigel Schiffahrt 4 x 37K IMO-II chemical carrier and Bernhard Schulte 2 x 20.6K LPG.

DSME signed the contract with Brave Maritime for 2 x 84K VLGC. DSME signed an agreement with Oman government to operate State-run Oman Dry Dock, for 10 years, which will be ready in 2009 with funding the $200m. DSME has an option to renew the management deal for another 10 years.
SHI bagged an order from African owner for 1 x Drill ship.

STX secured the order form Aktif Denizcilik for 1 x 115K tanker and NYK 4 x 2,700-teu boxships. STX Corp had signed a deal with the local government to produce hull blocks at a new factory in Dalian for STX yard. It also plans the construction of a mid-sized yard there. With demand for ship blocks increasing 25% every year, 700,000 tons will be needed annually by 2008, compared with the current 450,000 tons. Samsung and Daewoo have set up block facilities in China to keep costs down.

Daehan Shipbuilding agreed with Komrowski to build 4+2 x 170K bulkers, SPP with Benelux Overseas for 2 x 50K pc. SLS with NCC for 2 x 45K pc, and Polys Haji-Ioannou for 2 x 50K tankers, and 21st Century with Daelim H&L for 2 x 13K IMO II chem tankers.

HMM plans to begin servicing a new route with 3 foreign shippers, such as Hamburg Sud and Hapag-Lloyd AG, and China’s Shangdong Yantai International Marine Shipping, to launch the Asia-Australia service from Oct 31.
STX Pan Ocean has launched a logistics subsidiary in Qingdao, eastern China, as part of efforts to strengthen its business there. Qingdao STX International Logistics is STX Pan Ocean’s third wholly-owned subsidiary in China after logistics units in Hong Kong and Shanghai.