Author : Hwang & Co
Date : 07-08-13 08:47
Hit : 20637
Topics. -Taliban seized 23 Koreans as hostage. -Government's labor law worsened the labor unrest. -Pyeong Chang lost its second bid for the Winter Olympic. -Korea & EU continued talks on FTA. -NK shut down an atomic reactor, but 6-way talks had no progress. -USFK marked 50th anniversary of foundation in Korea. -Korea's economy grew at fast pace. -Moody's upgraded Korea's sovereign rating. -Government vowed to take action to cope with currency market with strong KWon. -Lone Star and GE imposed taxes. -Reverse mortgage scheme adopted for senior home owners. -Dubai oil price surged to $71.2 per barrel. -Hanwha chairman sentenced to 1.5 years in prison. -Procter & Gamble to buy drug technology from Dongwha for $511 mil. -Doosan Infracore bought Bobcat for $4.9 bil. -3M launched its first Asiana manufacturing facilities. -Overseas construction hit another record. -KOSPI broke 1900 and 2000 in the span of fortnight in July. -Korean shipyards raised their annual sales target. -Hyundai Samho bought the stake in POSCO. -DSME racked up orders for 27 ships, new record of monthly order intake.
GOVERNMENT AND SOCIETY
Taliban fighters seized 23 SKoreans in their 20 and 30s who were traveling on a highway between the capital Kabul and the southern city of Kandahar in the afternoon on July 19. They entered the country July 13 and due return home July 23. The hostages belong to the Saem-Mul Protestant Community Church in Bundang on Seoul's outskirts. They were mostly medical and nursing students. Taliban repeatedly extended the deadline by which they have threatened to kill the hostages unless the Afghan government releases an equal number of imprisoned fighters. They killed Rev Bae Hyung-kyu, the ailing leader of the 23 evangelists, on July 24. The government has accelerated efforts to free the hostages, dispatching a presidential envoy to the area. The government transferred the medical supplies and daily commodities to help the remaining 22 hostages to the Ghazni provincial government, but the local government could not establish contact with the Taliban group. SKorean government also pleaded for the international community's support in showing flexibility in negotiations with the kidnappers. A Taliban spokesman, confirmed the worsening health condition of the abductees, prompting the Afghan government to accept his demand to release Taliban prisoners. A female hostage appealed on July 28 for a speedy end to their ordeal, telling Reuters "We are tired and being moved from one location to another¡±, as a deliberate psychological tactic to put further pressure on the SKorean government. The Taliban announced late July 30 night that they had killed second male hostages, known as Shim Sung-min, 31, because the Afghan government was ignoring their demands. The Afghan government has sworn never to exchange Taliban prisoners with foreign hostages, as President Karzai was harshly criticized by the USA and European leaders for freeing 5 prisoners to save an Italian journalist earlier this year. USA, the harsh critic of prisoner-swaps, is keeping its distance from negotiations. In Seoul, some 150 anti-war activists staged a rally, blaming the government for dispatching troops to Afghanistan. The Organization of the Islamic Conference called for the "immediate" release of the Korean hostages, as a second captive was reported killed. In Seoul, top Arab envoys called for the prompt release of the hostages.
Labor unrest has worsened since government implemented the revised labor law, which stipulates that businesses grant regular worker status to temporary employees with a minimum of 2 years of working. About 35.5% of the total 15 million employees in Korea are hired as irregular workers. The law was designed to protect irregular workers but instead it is playing against them. The E.Land Group, one of the nation's major retailers, dismissed some 900 short-term contract workers prior to the implementation of the law on July 1. As evidenced by the E.Land case, the business community's warning of mass dismissals is now turning into a reality. But what is more alarming is that the E.Land case is only a prelude to what is yet to come in the years ahead. The problem will get out of control when the law applies to companies employing 100 to 300 workers next year and to those employing fewer than 100 in 2009. Those small and medium-size companies have two-thirds of the country's 5.8 million nonregular workers on their payrolls.
E.Land Group laid off over 900 irregular employees and cashiers, replacing them with outsourced workers before the Irregular Workers Protection Law took effect on July 1. Thousands of unionized E.Land Group workers and members of the Korean Confederation of Trade Unions have occupied the group's 13 discount outlets and department stores across the country, in protest. They also launched a campaign calling for a boycott of the major retailer. The union vowed to go ahead with their demonstrations unless management canceled layoffs. Police raided 2 outlets of E.Land Group on July 20, to forcefully stop 20 days sit-ins by the unionized workers. The retailer estimates that the sit-ins caused a sales loss of KW25 bil. About 370 E.Land Group workers and labor activists occupied again on July 29 a retailer's outlet, demanding the release of arrested union leaders and the scrapping of the temporary workers law. Thousands of riot police raided again a New Core store, forcefully ending a two-day sit-in by unionists, arresting some 200 protesters.
About 2,000 nurses, clerks and engineers at the Yonsei Severance Hospital in Seoul and 3 affiliated medical institutions walked off the job from July 10. The union is demanding to raise salaries by 4% and grant full-time status to short-term contract workers with experience shorter than the mandatory 2 years as stipulated by the revised labor law. Some 63% of the Korean Metal Workers Union voted in favor of the plans to stage an indefinite strike starting July 23 at a total of 185 workplaces nationwide. About 500 metal and automotive workers from across the country gathered in front of the headquarters of Hyundai Motor and the Korea Employers' Federation in Seoul, urging them to join the industry-level negotiations. Workers at GM Daewoo and Kia Motors launched partial strikes, demanding increased monthly salaries and incentives. The labor union of the state-run Korean Railroad Corp waged a campaign to oust its CEO for his failure to resolve prolonged disputes over laid-off employees, temporary contract workers and company restructuring, also demanding an 8% increase in wages and special holiday incentives amounting to 100% of monthly salaries. Justice Minister vowed that the government will push ahead with its "zero tolerance" policy toward illegal activities, citing recent anti-FTA rallies by the KMWU, sit-in protests by the E.Land union and the disruption of US beef sales by civic groups.
Pyeong Chang in Korea was defeated by its rival Russian city of Sochi in the Black Sea area, in a bid to host the 2014 Winter Olympics, by 51-47 in the second round of voting by the International Olympic Committee in Guatemala, wrapping up the two-year competition. Austria's Salzburg was eliminated in the first round of the secret ballot, which PyeongChang led with 36 votes, while Sochi had 34 and Salzburg 25. In the second round, 17 among the 25 votes for Salzburg in the first round went to Sochi, while PyeongChang got 8. It was Pyeong Chang's second unsuccessful bid to host the event. The city lost its bid to host the 2010 Games to Vancouver, Canada, in 2003, by just 3 votes.
Korea agreed to cooperate with Indonesia on construction of a $3 bil nuclear power plant, development of natural gas and upgrading an aged oil refinery. Korea Electric Power Corp and Korea Hydro & Nuclear Power signed a MOU with Indonesia's PT Medco Energi Internasional to cooperate on nuclear power generation in Indonesia. The companies will cooperate on the preparation for Indonesia's first nuclear power complex, with a capacity of 2,000 megawatts. Indonesia has proposed to build 4 nuclear reactors of 1,000 megawatts each on Java island by 2025. Korea produces almost 40% of its electricity from nuclear energy. KOGAS signed a MOU with Indonesia's PT Pertamina to cooperate on exploration and development of natural gas fields. SK Energy agreed with PT Pertamina to upgrade the Dumai refinery in Sumatra island, including replacement of pumps and pipes at an estimated cost of $150 mil. SK Energy also agreed with PT Pertamina on a $25 mil venture on co-branded lubricants. PT Petras Indonesia and the Korean group led by Innet Co will expand Tanjung Api-Api port in South Sumatra, which will require $600 mil in investment, to allow it to handle coal and "other energy." A memorandum of understanding, outlining to expand cooperation in nuclear power and the development of uranium and copper deposits, was signed between Korea and Ukraine in Kiev. The Korean energy companies are expected to exchange information about running nuclear facilities, and the construction of new reactors. Under its energy plan 2030, the Ukraine wants to build 3 reactors in the coming years. Seoul and Kiev also agreed to jointly mine uranium deposits in the Ukraine.
Imported American rice is gaining popularity among Korean consumers for its taste. Some 4,000 tons of Calrose rice imported from USA sold out within 2 weeks of retail sales started in mid-June. American rice is cheaper, at 65-70% of the price of Korean. The total amount of rice to be imported this year under the minimum market access quota of the Uruguay Round agreement is 34,429 tons. Korea has received 1,497 tons of US beef since late April, with Seoul's easing of import regulations on American beef. In July, 1,200 tons entered the country, more than quadruple the 248 tons in June. Korea was the third-largest market for US meat before the import ban in 2003. New York City has decided to be setting up a branch of its tourism bureau NYC & Company in Seoul, the third in Asia following those in Tokyo and Shanghai that opened late last month. Korea is the ninth largest tourists market with a total of 228,000 Koreans visiting New York in 2005. The National Association of Manufacturers, the largest US industrial group, urged the Congress to quickly act to approve a FTA with Korea, Peru, Panama and Colombia.
Korean citizens are likely to be allowed to travel to USA without visas for 90 days from July 2008 as a US Congress committee agreed to expand its Visa Waiver Program. Both chambers are likely to approve the bill and send it to US President Bush to sign into law within a couple of weeks. An estimated 750,000 SKoreans flew to USA last year, placing Korea seventh in terms of travelers to America. The visa-free program currently covers 27 countries, where no new member has been added since 1999 due to the intensifying international political tensions and the US war on terrorism. Less than 10% of total Korean outbound travelers have gone to USA so far this year due to the complication to get the visa, compared with about 35% to Japan and 15% to China.
Korean and EU negotiators began their second round of FTA talks in Brussels, after concluding round one in Seoul in May. The EU is Korea's largest foreign investor, with investments totaling $40.4 bil last year, and the second-largest trading partner after China boosting bilateral trade of $82 bil. The 2 sides are aiming to advance talks in 4 areas: manufacturing, services and investment, regulation-related issues, sustainable development and dispute settlement regulations. While the EU is stepping up pressure on Korea to quickly open up its auto market, the EU accepted most of Korea's requests to ease its antidumping and subsidy rules. The EU also agreed to revise in favor of Korea its method of calculating duties on products dumped on its market. Compared to Korea's FTA negotiations with USA, talks regarding trade remedies with Brussels are going smoothly and working in Seoul's favor. The automobile sector is expected to continue to be a major sticking point in the talks. EU negotiators have asked to eliminate the 8% tariff on autos within 3 years, while Seoul has proposed 7 years phase-out period. Last year, Korea sold about 740,000 cars with a total value of $9.1 bil in Europe, while European carmakers sold only about 15,000 units worth $1.6 bil. The third round of talks is scheduled for Sept in Brussels, while Seoul will host the fourth round in Oct.
Starting in 2009, Korea may see the first batch of students enroll at law schools modeled after legal certification systems in USA. Based on a new law, people who aspire to become lawyers and judges must attend law school and pass a bar exam in order to begin their legal careers. The 2009 class of the first law schools is expected to graduate by 2012. Only those with at least a bachelor's degree or equivalent may apply. The biggest point of contention is that the new system calls for 7 mandatory years of education before taking the bar exam.
In the first draft of its latest defense white paper, Japan claimed Dokdo, a set of rocky SKorean islets in the East Sea, as its territory, saying that the issue of its sovereignty has yet to be resolved. Dokdo has long been the target of Japan¡¯s territorial claims. Japanese conservatives activists protested US congressional demands for a clear apology over wartime sexual slavery, saying the women were not slaves but just making money. Lawmakers, academics and journalists gave the US embassy a protest letter saying they were ¡°surprised and shocked¡± by the US pressure for a fresh apology to so-called ¡°comfort women.¡±
Korean golfer Choi Kyung-ju held the second title in 5 weeks, winning the inaugural PGA National, during July 5-8, by 3 strokes over American Steve Stricker. The 37-year-old Choi won the first PGA tournament hosted by Tiger Woods barely a month after capturing Jack Nicklaus' signature event, the Memorial. It was his sixth US PGA title and makes this his first season since 2002 with multiple US tour victories. Pak Seri tied an LPGA record with her fifth victory of Jamie Farr Owens Corning Classic during July 12-15. Pak, who previously won the Farr in 1998, 1999, 2001 and 2003, matched Mickey Wright, who won the Sea Island Open in 1957-58, '60, '62-'63, and Annika Sorenstam, who had both the Samsung World Championship and Mizuno Classic 5 times apiece. Seon Hwa Lee won the HSBC Women's World Match Play Championship at a 2-down hole with 3 to play against Ai Miyazato from Japan. The 21-year-old Lee, the rookie of the year last year, knocked off the 12th-seeded Miyazato. Lee earned $500,000. Seeded 22nd, she beat No 43 Diana D'Alessio (1-up), No 54 Janice Moodie (5 and 4), No 27 Laura Davies (2 and 1), No 35 Lindsey Wright (3 and 2) and Kim Mi-hyun to reach the final. Kim earned $200,000.
Yang Tae-jung, 30, now attends Rostock Conservatory in Rostock, Germany, took first place in Placido Domingo¡¯s annual Operalia Competition, which ended in Paris on June 30. Korean Air Lines has formed a partnership with France's Louvre Museum in upgrading the museum's equipment. The company will supply some of the content included in the museum's electronic guide. The Louvre has agreed to include Korean-language commentaries in the audio guide, for the first time in the French museum. A 12th-century ship carrying thousands of pieces of high-quality green porcelain was discovered in waters off the southwestern part of SKorea. The wooden vessel, buried underwater in mud flats in Taean County, possibly dates back to the latter part of Goryeo Dynasty (918-1392), when the porcelain artistry reached its zenith. It was explored after a squid fisherman found pieces of porcelain in his net.
Smoking will be prohibited at all bus stops in Seoul fron Sept. A total of 5,374 bus stops have been labeled with the sign, "Bus Stops, No Smoking." Starting from July, a number of parks in Seoul named smoke-free areas. All parks operated by the city government will become nonsmoking grounds by the end of next year.
NORTH KOREA AND NATIONAL DEFENSE
NK had shut down its Yongbyon atomic reactor under UN supervision, the first step in a process designed to rid NK of nuclear weapons. The facility has produced plutonium for nuclear weapons. "We shut down the nuclear facilities at Yongbyon and allowed the IAEA personnel to monitor it on the 14th, when the first shipment out of 50,000 tons of heavy fuel oil arrived, under a Feb 13 aid-for-disarmament deal" a NKorean foreign ministry spokesman revealed. NK is raising the stakes ahead of the six-party negotiations by calling for bilateral military talks with the USA and demanding evidence, in a verifiable and understandable manner, that Washington has no nuclear weapons on the peninsula. US chief negotiator Christopher Hill dismissed the North's calls for military talks, saying all peace deals are discussed between governments. The US military has confirmed that it withdrew all its tactical weapons from SKorea in 1991. Last year, President Roh also reaffirmed that there is no US nuclear weapon in SKorea.
The chief nuclear negotiators from the 6 countries gathered July 17 in Beijing, as their first meeting in 4 months. The chief negotiator from NK, Kim Kye-gwan, remained ambiguous on weapons declaration but hinted that his country is seeking to separate its nuclear weapons from the general nuclear weapons programs currently being negotiated in the six-party talks. The parties had to settle for a reaffirmation to design a roadmap for NK's full declaration and disablement of nuclear programs. Kim added his country was ready for dismantlement but is waiting for a light-water reactor since a breakthrough Sept 19 joint statement in 2005. In the statement, the members pledged to discuss the provision of the reactor. USA suspended the construction of a light-water reactor in Shinpo following the collapse of 1994 agreement in 2002, due to an allegation that NK has been operating a clandestine uranium enrichment program to produce nuclear weapons. Although NK "commits" to abandoning its nuclear weapons and all existing nuclear programs in the Sept 19 Joint Statement in 2005, NK has refused to specify "nuclear weapons" in follow-up negotiations and used the general term "nuclear programs" instead, since its Oct 9 nuclear test last year. So technically, even with the shutdown of the nuclear programs in Yongbyon, USA and its allies still have the problem of NK's highly-enriched uranium program and nuclear weapons to solve. The talks, which ended July 20, failed to draw out a timeline for the next step of getting NK to declare and disable its nuclear programs. The 6 parties released a press communique, pledging to implement the second phase and get the working groups before the end of Aug to discuss plans and hold the second session of the sixth round of talks in Beijing in early Sept to work out the roadmap for the implementation.
The US Forces in Korea marked the 50th anniversary of the foundation of its headquarters in Seoul. The establishment of the USFK headquarters in Seoul coincided with the transfer of the UN Command from Tokyo to Seoul on July 1, 1957. Hundreds of thousands of dedicated US soldiers have played a key role in providing security on the peninsula and stability in Northeast Asia. The US military has decided to retain its 8th Army headquarters on the peninsula even after SKorea takes over wartime operational control of its armed forces from USA. The 8th Army is a US military command that fought during the 1950-53 Korean War. It has been stationed on the peninsula since 1955 as a main deterrent against NK.
General-level military talks between South and North Korea ended in a rupture over the disputed western sea border. Pyongyang has persistently protested against the Northern Limit Line, as it was unilaterally drawn by UN Command at the end of the 1950-53 Korean War. 2 navies engaged in bloody skirmishes in 1999 and 2002 mainly due to NKorean violations of the maritime border. 2 sides failed to agree even on when to hold the next round of talks. The agenda for the talks originally included discussions on how to prevent military conflicts, where to create a joint fishing zone, direct passage through the NLL by NKorean cargo ships for commercial purposes, and comprehensive military security for inter-Korean economic cooperation projects.
SKorea decided to provide $20 mil worth emergency food aid to NK through the UN World Food Program. SKorea shipped 6,200 tons of heavy fuel oil, as part of its commitment of 50,000 tons, to NK, who moves to shut down its nuclear reactor. NK is entitled to 1 mil tons of fuel oil as a reward for a series of steps to shut down and disable its key nuclear facilities. The Seoul government started shipping raw materials to the North as part of the light industries and natural resources cooperation agreed between 2 Koreas last year. SKorea has agreed to provide $80 mil worth of raw materials to help the NK make such products as clothing, footwear and soap, in exchange of NK¡¯s natural resources. SKorea started sending 50,000 tons of rice aid to NK overland as part of its promised loan of 400,000 tons of rice aid. The South is to deliver 30,000 tons of rice via the road passing through the border town of Kaesong, while another 20,000 tons will be transported on the road along the east coast. SKorea is delivering remaining 350,000 tons of rice to North by sea.
ECONOMY AND POLICY
Korea's economy grew at the fastest pace in 18 months as exports jumped. Korea¡¯s GDP expanded 1.7% in second quarter on quarter, marking a 17th consecutive quarterly expansion, the longest since 1996. Exports rose 5.2% in the second quarter, nearly double the 2.7% first-quarter gain. The government raised economic growth projections to 4.6% from 4.5%, reflecting the optimistic projection of BOK, who changed its projected GDP growth rate for 2007 to 4.5% from 4.4%, on the back of robust exports and rising domestic consumption. Moody's Investor Service upgraded Korea's sovereign ratings to A2 from A3, citing the country's good track record in financial prudence, improving macroeconomic conditions and the containment of geopolitical. The Korea Development Institute confirmed that the country¡¯s economy is in recovery, the industrial output and the service industry maintained the steady growth rates. Korea¡¯s industrial production is expected to have risen 7.6% on year in June, compared with 6.6% up in May.
Korea's exports grew at the fastest pace in 6 months in July, rising 20% on year, thanks to the fastest expansion in 12 years in China, and buoyant demand from Europe. Exports climbed to $30.9 bil and imports gained 14.9% to $29.4 bil, resulting in a trade surplus of $1.6 bil in July. Government expects Korea¡¯s exports to reach $367 bil this year, up 12.8% on year. Korea¡¯s exports of information technology goods are projected to grow 10.5% in 2007 on year to $125.1 bil. The export of oil products reached $10 bil in first half of 2007, up 13.3% on year, recording the biggest amount. China is to surpass Japan in exports to Korea. China's shipments to Korea are expected to jump more than 36% in the first half of this year on year. The country's trade surplus with China is contracting, while its deficit with Japan is expanding. Korea shipped $36.2 bill worth of goods to China and $12.2 bil to Japan in the first half. Korea's travel balance had recorded a surplus of $3.4 bil in 1998 and $1.9 bil in 1999, but the account stood at a deficit of $300 mil in 2000, surging to $1.2 bil in 2001 and $13 bil in 2006, exceeding the $10-bil level for the first time. It is expected to go well over $16 bil by the end of this year.
Confidence among Korean manufacturers fell in July for the first time in 6 months to 86 from 91 in June, on concerns that a rally in the local currency may hurt price competitiveness in overseas markets. Korean government has expressed concern about KWon's strength, vowing to take action when there are "volatile movements in the currency market,¡± warning that KWon has risen far above the appropriate level and does not fairly reflect recent macroeconomic conditions, as a noticeable piece of evidence that the local currency is substantially overvalued. KWon has jumped 42.5% against USDollar since 2002, far above Japan's 7.1% and Taiwan's 6.6%. KWon gained 1.8% against USDollar in the second quarter of this year. The nation's current account surplus shrunk from $28 bil in 2004 to $6 bil last year. The economy already posted a current account deficit of $3.3 bil in the first 4 months of this year. The Finance Ministry is considering restricting the amount of funds foreign banks' local branches are able to borrow from overseas shareholders at reduced tax rates to 3 times the value of their capital stocks, from current 6 times, as the rapidly rising short-term foreign debt and the resultant distortion of the local foreign exchange market are contributing to the overvaluation of KWon. Government¡¯s bond issued to stabilize the foreign exchange market, are likely to top KW100 tril ($109 bil) next year as the government plans to increase the issuances of bonds to buy dollars in the coming months, setting the ceiling of currency bond issuances at KW11 tril next year.
Korea¡¯s tax tribunal rejected appeals by the US fund Lone Star to nullify $110.7 mil in penalty taxes imposed on its profits from the sale of the Star Tower building in Dec 2004. Lone Star filed the complaints in March 2006 against the tax decision to impose the back taxes on the fund¡¯s gains from KW900 bil ($979.3 mil) sale, arguing that it is exempt from the taxes since its Belgium-based Star Holdings conducted the sale. Seoul and Belgium have signed a double taxation avoidance agreement. The High Prosecutors' Office ordered a regional prosecutors' office in Seoul to reopen the investigation into alleged criminal activity at the Korea Exchange Bank, which is controlled by Lone Star Funds. The order follows the appeal filed by a group of 102 people who seek to end corruption in foreigners' operations at Korean banks. The group accused former and incumbent KEB executives and Lone Star fund managers of manipulating the stock price of the KEB in 2004 by overstating the bank's financial difficulties, and KEB have illegally dodged a KW415.3 bil tax with the tactic. The KEB is currently suing the National Tax Service, claiming NTS wrongly collected an additional KW174 bil of tax from the KEB.
Reverse mortgage schemes are receiving a warm response from senior homeowners. The sale of the mortgage products received about 1,280 loan inquiries from prospective borrowers during 2 days after the launch. The loan products guarantee senior homeowners a monthly income for as long as they live without having to move out by releasing the equity in their homes. The Korean government hopes that it will provide some financial security to the country's fast-expanding elderly population.
ING Group plans to inject roughly $551 mil into its Korean insurance unit for additional capitalization, raising the solvency rate from the current 153% to the 200%. The Korean branches of 33 overseas-based banks in the last 12 months are estimated to have increased their assets by 35%, exceeding KW130 tril ($142 bil) as of March this year, being attributed to their robust buying of domestic government and public bonds in an attempt to take advantage of the interest arbitrage between Korea and overseas countries. Short-term borrowing of foreign currencies in May 2006 reached $3 bil, well over 200% on month. Morgan Stanley Investment Management has signed a strategic partnership with the National Pension Service, to provide support and training to enhance the pension service's overseas investment portfolio and in-house capabilities. NPS is the second-largest pension fund in Asia after Japan, and manages over $200 bil of assets.
China's GDP grew 11% in the second quarter and may expand 10.6% in whole year on year, marking the fifth year of at least 10% growth. China's trade surplus jumped 84% in the first half on year to $112.5 bil. China's first-half crude oil imports rose 11% on year to 82 million mt (3.28 million barrels) a day Japan's trade surplus surged in June 53.4% to JY1.23 tril ($10.2 bil) on year, with exports climbed 16.2%. BOJ kept its benchmark interest rate unchanged at 0.5%.
Dubai crude price started the month at $67.14 per barrel, surged to the record high of $71.2 for the first time to break $70 per barrel since 8/2006, then ended at $69.67. Unplanned shutdowns in US refineries stoked concerns on the global gasoline stock level, pushing the price of Dubai oil, up about 30% from the beginning of the year. Dubai oil accounts for about 80% of Korea's crude imports. The Korean government revised up its 2007 oil price forecast to $62 per barrel from the earlier $58.
A total of 215 KOSPI-listed firms with their accounting year ending in Dec are expected to report combined first half earnings of around KW313.76 tril ($339.94 bil), an 8.3% increase on year. Their operating profits and net incomes are estimated to be KW26.84 tril and KW24.4 tril, respectively, seeing on year growth of 14.1% and 8.9%. Heavy industries like shipbuilders, steel and machinery manufacturers led earnings improvements. Companies whose net income growths are estimated to be more than 100% include Doosan Heavy Ind (930%), STX Shipbuilding (508.4%), Samsung Heavy Ind (314.9%), Daewoo Shipbuilding (164.5%), Hyundai Heavy Ind (243.5%), and STX Engine (228%). POSCO is expected to see an estimated net income growth of 34.6% with a nearly KW2 tril in net profit, Daiyang Stainless Steel 1,180% net earnings increase and Husteel a 222.4% jump.
A total of 14 Korean companies made this year's list of the world's 500 largest corporations picked by Fortune Magazine. The "500 Global" list was headed by Wal-Mart with $351 bil in revenue and $11.2 bil in profit, followed by Exxon Mobile, Royal Dutch Shell, BP, General Motors, Toyota Motor, Chevron, Daimler Chrysler, ConocoPhillips and Total. The Korean companies on the list were led by Samsung Electronics (SEC), which ranked 46th in the list with $89.4 bil in revenue, becoming Asia's largest consumer electronics firm, outpacing Hitachi. LG was at 73rd, Hyundai Motor Company (HMC) 76th, SK 98th, Korea Electric Power (KEPCO) 228th, Samsung Life Insurance 229th, POSCO 244th, Kookmin Bank 349th, Hanwha 374th, KT 388th and Hyundai Heavy Industries (HHI) at 422nd. Samsung Corp was at 436th, SK Networks 438th and S-Oil at 491st. Fortune's 50 largest corporations in Asia included 31 Japanese, 8 Chinese and 6 Korean companies. The number of holders of stocks worth more than KW1 tril ($1.08 bil) has doubled to 10 this year. Chung Mong-joon, a National Assembly member and the largest shareholder of HHI, topped the list with total shares worth KW3.14 tril, a three-fold jump from a year ago. Chung Mong-koo, HMC Group chairman, ranked second with KW2.72 tril. Lee Myung-hee, Shinsegae Group chairwoman, ranked third with KW1.82 tril. Shin Dong-bin, Lotte Group vice chairman, followed with KW1.79 tril, with Samsung Group chairman, Lee Kun-hee, KW1.76 tril. Others listed included Shin Dong-joo, the VP of Lotte Japan, with KW1.71 tril, Suh Kyung-bae, CEO of Amore Pacific, with KW1.22 tril, Hanwha Group chairman Kim Seung-yeon with KW1.09 tril, Chung Yong-jin, Shinsegae Group vice chairman with KW1.02 tril, and GS Holdings chairman Huh Chang-soo with KW1 tril. The country's top 10 richest holders of shares together were worth KW17.28 tril as of July 5 this year, a 47.27% jump on year. Korea Management Association Consulting announced a list of 82 premium products that improved lives of Korean people with distinctive product sensibility and quality, including SEC' digital flat TV set Samsung PAVV, LG Electronics' refrigerator LG Dios, and the Cuckoo brand rice cooker in the electronics category. Amore Pacific's skincare product Sulwhasoo and Unilever Korea's hair product Dove won in the personal care items. In the financial goods category, Woori Bank's private banking service Two Chairs, and the BC Card credit card came out on top.
Samsung Electro-Mechanics, Korea's No 1 electronics parts maker, plans to move all its camera module production lines for mobile handsets to China by the end of the year. It already produces 70% of its camera modules at its Chinese plant in Tianjin. When the relocation is complete, the Chinese plant will produce 50 mil modules a year. SEC is launching a precious mobile phone, which is ornamented with 18 karat gold, exclusively targeting wealthy Chinese for the 2008 Beijing Olympics. SEC exceeded Motorola in handset sales and the number of cell phones sale became the world¡¯s No 2 in the second quarter. Motorola reported that its sales reached $4.27 bil, with a total of 35.5 million cell phones sold during the period. It posted a net loss of $28 mil, while SEC sold 37.4 million handsets up 49% on year, amounted to $4.61 bil.
Moody¡¯s raised credit rating of SK Energy, spinned off from SK Group under the holding company system, from Baa3 stable to Baa2 stable. China Petroleum & Chemical Corp, China¡¯s largest oil refiner, has signed an accord with SK Corp to jointly build an ethylene plant in China. China wants to increase oil-processing capacity 25% and more than double ethylene production capacity by 2010 to reduce reliance on imports of the chemical. SK Energy, the country¡¯s largest oil refiner, has won a bid to develop an oil field in Peru¡¯s offshore Trujillo basin, winning the right to develop 100% of the field, known as Peru Offshore Block Z-46. SK Energy, which has daily refinery capacity of 875,000 bbl, 24th largest in the world, signed the LOI with Pertamina of Indonesia, ranked 20th with 993,000 bpd, to develop offshore market. They agreed on joint development of offshore resources, explore global lubricant market, and share the knowhow for refinery facilities. SK Telecom, Korea's largest mobile-phone operator, is to invest $100 mil this year on a US subsidiary to help its unprofitable mobile-phone business in the country. SK Telecom USA owns 50% of wireless operator Helio LLC, with partner Earthlink Inc. Helio may post a loss of $330-360 mil this year after a deficit of $192 mil in 2006. SK Telecom forecast that Helio will turn profitable in 2009. Earthlink, the fourth-largest Internet access provider in USA, is to spend $50-100 mil on Helio this year. SK Telecom has raised around $400 mil by issuing long-term global bonds in the US market. The 20-year bonds carry an annual interest rate of 1.55% plus the US Treasury yield with a maturity of 30 years.
YouTube agreed to provide video sharing services for LG Electronics' upcoming mobile phones. LGE' YouTube handsets, scheduled to hit the European market at the end of the year, will allow users to create and edit user created content and upload video files directly to the YouTube website without connecting to personal computers or laptops. Owned by Google, YouTube was selected as Time magazine's Invention of the Year last year. LG Chem, Korea's largest chemicals maker, agreed to take over LG Petrochemical to increase competitiveness amid rising global ethylene supplies. LG Chem and LG Petrochemical plan to merge on Nov 1, and the combined company's shares will start trading Nov 21.
Kim Seung-youn, 55, the chairman of Hanwha Group, the country's 12th biggest conglomerate, was sentenced to one and a half years in prison for the conviction of ordering his bodyguards and local gangsters to kidnap and beat up the bar workers after his son was injured in a fist-fight in early March. Kim has been in jail since May 11.
Korean car makers increased the gap between export and local sale. They exported 118,362 units while sold 495,506 in local market. HMC's monthly sales in USA reached a record in June, selling more than 49,000 units, boosting its market share in USA to 3.4%, the highest since the company began exporting to USA in 1986. Kia Motors signed a 4 year sponsorship contract with the Chinese Football Association. Kia hopes that the sponsorship will improve its image and boost its sales in time for the opening of the second plant of Dongfeng Yueda Kia Motors at the end of the year.
Hynix Semiconductor, which ranks fifth in the global semiconductor industry, aims to join the top 3 by attaining $18 bil in revenue by 2010. Also, it aims to raise market share of its main memory chip products, DRAM, NAND flash and future product PRAM up to 30% each by 2012. In 5 years, Hynix aims to attain $25 bil in revenue. Hynix decided to confer to its 18,000 employees 2,358,822 shares in the company. The employees will acquire at a 20% discount of market price in the designated date and hold their company shares during a certain period without an IPO.
Procter & Gamble will pay Dong Wha Pharmaceutical $511 mil for rights to its osteoporosis treatments. Dong Wha will sell technology to P&G Pharmaceuticals to develop a substance called DW1350, which is used for the treatment. Dong Wha will also receive part of the sales as a running royalty when products come to the market. Humax Co, Korea¡¯s leading digital home device manufacturer has signed a $30 mil deal to supply set-top boxes to Dogan TV, Turkey¡¯s largest satellite broadcasting operator, by the end of this year. This is the first time for a local set-top box manufacturer to bring products to the Turkish market. Pantech Group is to supply British mobile operator, O2, with its HSDPA mobile phone, Cocoon, which is expected to be launched on the British market early this Oct. Named after its streamlined shape, the Cocoon phone is equipped with various multimedia functions, including an mp3 player with a 2GB memory card, Bluetooth and a digital camera.
Doosan Infracore, Korea's largest manufacturer of construction equipment, is buying Bobcat and 2 other units of US-based Ingersoll Rand, paying $4.9 bil. The largest foreign acquisition deal by a Korean firm is expected to give Doosan a big leap forward in the global construction-machinery industry. The purchase is expected to catapult Doosan's ranking to 7th place, up from the current 19th. 3M Korea launched its first manufacturing facility in Asia in Hwaseong City, south of Seoul. The OH&ES plant is to produce occupational health and safety products. Initial products will include maintenance-free particulate respirators. 3M's Hwaseong plant is adopting blown micro-fiber technology, a core technology for producing non-woven fabric, which produces high-level filtering. 3M invested $152 mil. Considering the increasing demand for industrial safety goods in the Asian market, more than half of its output will be shipped to neighboring countries, such as Japan and China.
The overseas construction contracts hit a record high this year, surpassing last year's record. A total of $17 bil worth of overseas construction orders were made as of July 16, breaking the previous record of $16.5 bil achieved last year. Korean contractors expect orders to reach $20 bil by the end of this year. Middle East was the biggest customers with over $11 bil, surged 76% on year, followed by Asian countries with $3.4 bil, an increase of 47%. Doosan Heavy Industries recorded the highest order of total $29 bil followed by HHI with $21 bil and Samsung Engineering with $20 bil. Doosan Heavy Ind, Korea¡¯s largest manufacturer of power generators, has received a $500 mil order to build a thermal power plant in southeastern Qatar. Doosan formed a consortium with GE to obtain the order placed by Hydro Aluminum AS, Norway¡¯s aluminum producer, and the state-run Qatar Petroleum. The completion date is scheduled for July 2010. Doosan Heavy received a $180 bil order from Shuaibah Expansion Project, a Saudi Arabian company, to construct a water desalination facility for the completion by Feb 2009. Doosan holds a 40% share of the global market for multi-stage flash desalination facilities. It is currently building the world's largest desalination plant in the Middle Eastern country for $850 mil. Samsung Engineering won the order from Thailand National Petroleum for gas treatment plant at $470 mil. It will be the biggest gas treatment plant in the world with daily capacity of 800 mil cuf when completed in Feb 2010.
Korean Air Lines plans to add the new long-range Boeing 787 Dreamliner to its fleet. The nation's largest airline would acquire 10 new Boeing jets from 2009 to 2013 for the price of $146-200 mil, which would help the company tap fresh air routes to South America and Africa. The lightweight, carbon-composite jetliner can carry up to 330 people, saves about 20% on fuel costs and able to fly up to 15,750 kilometers without refueling.
Seoul City will levy KW17.1 bil ($18.59 mil) in back taxes on an affiliate to GE Korea for its purchase of buildings in Seoul since 2004. GE Real Estate purchased 6 buildings in affluent business districts in Seoul. Their current prices are estimated at about KW300 bil. The company sold 2 of the buildings for undisclosed prices in Dec and Feb. Current law stipulates that a company pay 3 times more than the normal registration tax if it buys real estate in Seoul in the first 5 years after its incorporation. GE Korea said it will pay the additional tax but will appeal to a court to get refunded.
POSCO will be building an additional steel mill near the company¡¯s plant in Gwangyang. Scheduled to begin Aug 2008, the construction of the KW855 bil ($933 mil) steel plate production plant will be completed in 2010. POSCO completed a magnesium sheet production facility in Suncheon, South Jeolla Province, in an attempt to step up as a leading integrated metal processing company in the global market. The plant will produce 3,000 tons of thin magnesium plates using the newly devised strip-casting process. Magnesium sheets enable a practical application to automobile electronics and sports and leisure equipment. POSCO is set to become the largest shareholder of Cockatoo Coal Ltd, an Australian coal explorer. POSCO has signed a contract to buy over 73 million newly issued shares of the company for A$25 mil ($22 mil) through its POSCO Australia Pty. When the transaction is completed by Sept, POSCO will hold a 19.99% stake to become the largest shareholder in the company. POSCO posted the operating profit of KW1.247 tril in second quarter of this year, bigger than SEC¡¯s profit of KW910 bil, thanks to favorable market better-than-expected. Its revenue was KW15.815 tril.
MONETARY AND ECONOMIC INDICES
Korea¡¯s Composite Stock Price Index started the month at 1771, soared up to 1805 on July 3, continued renewing the record on the upgraded Korean sovereign rating by Moody¡¯s, jumped to 1,909.75 breaking the 1,900 mark for the first time ever with abundant liquidity and rally in New York market on July 12, closed above 2,000 for the first time on July 24 on the back of the fastest economic growth in 18 months reaching at 2,004.22, then started to plummet to 1883 following the slump in US market, ended the month at 1933. UBS AG predicted KOSPI index will reach 2,300 in a year as corporate-earnings recovery speeds up and domestic investors buy the nation's stocks, improving its previous target at 1,850. The KOSPI index has gained 39% this year, a performance second only to China's CSI 300 Index among Asia's key stock indexes. The KOSPI topped 1,000 for the first time in Feb 2005, and take less than 3 years to cross the border line 1900 and 2000 in the span of fortnight. The total assets of stock funds reached a record high of KW90 tril ($98 bil) on the back of the unrelenting stock rally and optimistic investor sentiment. The investment pool has grown over 60% from March, while foreign investors continued to have cashed Korean stocks. Foreign investors sold over $360 mil of KOSPI shares in the first half of the year, continuing last year's net outflow of $11.3 bil, while foreign buying continued in other stock markets in the region, including net inflows of $54.2 bil in Japan, $7.9 bil in Taiwan and $5.7 bil in India. Foreign holdings of domestic stock as of late June accounted for 33.5% of the total stock market. The market capitalization of shares listed on the Seoul bourse has exceeded KW1,000 tril for the first time, representing 111.5% of the estimated 2007 national GDP, getting closer to the ratio of more developed economies.
The exchange rate of KWon against USDollar started the month at 921, kept strengthened to 914, the lowest since last Dec, then returned to 919 at the end. JYen tumbled below KW750 per JY100, down nearly 5% from the 2006 average and over 25% from 2004. As of the end July, the nation's foreign reserves reached $254.84 bil, compared to $250.7 bil in June.
The central bank raised its benchmark interest rate to a six-year high of 4.75% on the concern that record lending to small companies will fuel inflation and asset bubbles. BOK warned that upward pressure on inflation will likely increase from the second half of this year into the first half of 2008, signaling more rate hikes in the near future. Korean banks' lending rates for small and medium enterprises (SMEs) reached the highest level in over 5 years in June. The average interest rate for SME loans reached 6.63% in June, up 0.03% on month. The average lending rate for households dropped 0.06% to 6.33%. Interest rates for home-backed loans fell 0.04% to 6.13%. The yield on 3 years corporate bond fluctuated in the box of 5.68-5.82-5.64% throughout the month. Korea's jobless rate fell to 3.3% from a six-month high of 3.4% in May.
SHIPBUILDING AND SHIPPING
Korean Government forecasted the export of ships to surpass $28 bil this year, 27.7% up on year, on the volume of 12.3 mil CGT this ear, up 10.8% on year SHI racked up orders totaling more than $10 bil in the first half this year, for the shortest period to accumulate orders of that value. DSME bagged orders for a total of 71 vessels worth $9.2 bil. HHI has received orders for 71 vessels and offshore facilities totaling $8.37 bil, about $1 bil shy of its full-year target of $9.2 bil. STX has almost doubled its annual order target to $10 bil, compared to its previous aim of $5.5 bil, after booking $5.3bn of new business already this year on a rush of bulker orders. Market leader HHI is targeting $14.9 bil, while DSME is aiming for $17 bil and SHI $15 bil of new orders this year. A former DSME engineer has been accused of stealing ship designs amid growing concern that Korean shipbuilding technology is being illegally sold to emerging rival China. He has allegedly taken 150,000 separate sheets covering the "as-built" designs of 63 containerships and tankers, as were held in his personal computer. He joined ship-design company Mastek, which is involved in a joint-venture project to establish the Quingdao Jimo Mastek shipyard in China. However, he contends he never used the information held on his computer, and his information is now be out of date following the introduction of CSR and other new regulations. The Korean government is preparing new laws to make it a criminal offence punishable by fines or even imprisonment to disclose to foreign countries technical information. Korean shipbuilders expect the market in the second half will be led by LNG carriers, while first half was dominated by container ships, offshore structures and bulkers. They aim to secure 7 x 150K LNG ships from Angola and number of delayed projects will be expedited as the market reveals shortage of carriers, activating new building market. About 160 ships of delayed orders are expected to come to the contract from the second half of this year and will be digested in 2-3 years.
HHI won the order from Nord Capital for 8 x 13,100 teu, K Line 5+5 x 4,400-teu post-panamax container ships, Dioryx 2 x 4,400-teu boxships, Irano-Hind 1 x 159K suezmax tanker, Sun Enterprises 2 x 158K suezmax tankers, Kristian Gerhard Jebsen 4 x 120K the largest aframax pc, Lauritzen Bulkers for 2 x 180K bulker, TOTAL +NNPC 1 x Offshore production platform and Naftomar a third 22.5K cbm LPG carrier. Hyundai Samho agreed with Metrostar Management for 2 x 165K Suezmax tankers. Hyundai Samho spent $527m to buy 1% stake in POSCO who is shoring up its defences against a possible takeover bid by Arcelor Mittal and is looking to bring friendly shareholders on board. POSCO has engaged in cross-shareholding deals with friendly firms. HMD bought 1% in POSCO for $369m in May, with Posco snapping up 1.9% stake in HHI. HMD got the order from ST Shipping&Transport for 4 x 45K MR pc.
SHI received orders from Pride International for 1 x ultra-deepwater drillship and Seadrill a third ultra-deepwater drillship. SHI ordered the world's largest floating dock of the size 500m x 89m from Cosco¡¯s Dalian yard for delivery 8/2008, which can build 6-8 VLCCs or mega-size containerships of more than 10,000 teu or LNG a year, investing around $100m. SHI already has 2 floating docks, one was delivered last year by Shanhaiguan with 320m x 55m to build aframax tankers. ShI posted the revenue of KW2.788 tril up 30.7% on year in second quarter, with operating profit of KW107.6 bil compared last year¡¯s KW24 bil, and net profit of KW130.2 bil from KW32.1 bil. For the performance of first half, SHI recorded revenue of KW3.902 tril up 27.4% on year, with operating profit KW183.9 bil up 305.9% and net profit of KW220.3 bil up 363.8%.
DSME has racked up orders for a total of 29 ships worth more than $4 bil in July, setting a new world record in monthly order intake, including a US owner¡¯s 1 x semi submersible drill ship, 2 Asian owners¡¯ 4 x super cont ship and 4 x Panamax container, European¡¯s capesize bulker and another European¡¯s 4 x super container. DSME and its biggest shareholder Korea Development Bank are reported to decide to sell shares in DSEC, 100% subsidiary of DSME and the ship design and inspection company. DSEC made a net profit of KW4.2 bil ($4.57 bil) last year, with revenues of $171.3 bil. It has around 150 engineers.
STX got the orders from Avra Maritime Service for 3 x 180K capsize bulker, Efploia 2 x 81K kamsarmaxes, Trojan Maritime 4 x 81K bulkers, National Navigation of Egypt 4 x 81K and 2 x 85K bulker, and Niki Group of Greece 6 x 6,700 ceu PCTC. SLS received orders from MISC for 8 x 45K chemical/pc. SPP got the orders from Blue Line Ship Management of Greece for 2 x 50K chemical tankers and Adelfia Shipping of Greece 2 x 59K bulkers. Daehan Shipbuilding had orders from Aktif Denizcilik for 2 optn x 171K capsizes and Daesun with European for 2 x 25K pc
Korea Line Corp purchased a LPG carrier of 78,800 cbm from Daelim HNL at KW46.5 bil ($50.5 mil). STX Pan Ocean contracted for 4+2 x 40K bulker at Nantong Huigang Shipbuilding for the delivery of 2009-2010. TPC Korea, Korea¡¯s major forest-products carrier, ordered Nanjing Dongzhe Shipyard to build 2+2 x 35 ships for $29m each and Weihai-based Samjin Shipyard 4+2 loggers at $34m each.