March Export COVID-19 Impact Was a 'Preview'... "The Hardest Part Starts This Month" (Comprehensive 2)

Expansion of Factory Shutdowns in Europe and North America
Export Decline Expected to Widen
Concerns Over Semiconductor Slump Despite Resilience
Global IB Revenue Forecasts All Downgraded

[Image source=Yonhap News]

[Asia Economy Reporters Kwangho Lee, Eunbyeol Kim, Chaeseok Moon] The decline in exports to negative territory after a month was due to a decrease in semiconductor exports, the main industry, along with a significant reduction in overseas demand and oil prices, leading to poor petrochemical indicators. The problem starts this month. Due to the impact of the novel coronavirus disease (COVID-19), factories and stores in Europe and North America have closed, and it is expected that the decline in exports will widen. Even the government views future exports as challenging.

According to the 'March 2020 Export-Import Trends' released by the Ministry of Trade, Industry and Energy on the 1st, major export items such as semiconductors (-2.7%), petrochemicals (-9%), and petroleum products (-5.9%) showed sluggish performance. These items account for 31.74% of total exports, with semiconductors at 18.68%, petrochemicals at 6.99%, and petroleum products at 6.07%.

Domestic and international experts are concerned that from this month, the decline in demand from North America and Europe will be reflected in contracted volumes and, subsequently, export indicators. Semiconductor exports have held up so far, but there are forecasts that the semiconductor market could enter a recession due to a sharp drop in global IT demand caused by COVID-19.

Recently, global investment banks (IBs) and research institutions have collectively downgraded their global semiconductor sales forecasts. Nomura Securities of Japan lowered its semiconductor sales growth rate for this year from the previous 8% to 3% and predicted semiconductor prices will continue to fall for the time being. Goldman Sachs and Citibank have cut their annual earnings per share (EPS) forecasts for global semiconductor companies by 20-30% this year. This reflects the inevitability of reduced sales and profits for semiconductor companies due to the slowdown in global IT demand. Market research firm IDC recently forecasted a 6% decline in global semiconductor sales this year compared to the previous year.

Although prices, centered on DRAM, have shown signs of recovery, exports have turned negative, raising concerns. According to market research firm DRAMeXchange, the fixed transaction price of DRAM (DDR4 8Gb) last month was $2.94, up 2.08% from $2.88 the previous month. DRAM prices, which had stopped declining since the end of last year, have risen for three consecutive months this year. Regarding this, Na Seung-sik, Director of Trade and Investment at the Ministry of Trade, Industry and Energy, said, "Semiconductor export volumes have been increasing since July last year," and added, "The ministry believes that the semiconductor sector has performed sufficiently well."

Petrochemicals and petroleum products saw a decline in exports last month due to a global drop in demand caused by the spread of COVID-19 and a plunge in oil prices. Government measures such as switching export destinations for petrochemical products and extending the tariff payment deadline by two months for refining companies were insufficient. Besides COVID-19, political conflicts over energy dominance among the U.S., Saudi Arabia, and Russia cast a dark outlook on future export performance. A domestic facility explosion caused a production disruption of 11.2% in the naphtha cracking center (NCC) capacity, and despite COVID-19, Chinese petrochemical facilities have been operating normally, resulting in excess regional inventory. Additionally, sluggish conditions in upstream industries such as automobiles and electronics also had an impact. Consequently, product prices fell, leading to a decrease in petroleum product exports.

The automotive industry, which saw a surprising 3% increase in exports last month, is sighing that the real 'bitter hardship' starts this month. Major factories in North America and Europe are closing one after another. Hyundai Motor and Kia Motors’ U.S. plants will suspend operations until the 10th. Hyundai’s plants in the Czech Republic, Russia, Brazil, and Turkey, as well as Kia’s plant in Slovakia, have also shut down. At least Hyundai and Kia are restarting their plants in China. Domestic market sales account for only 17% and 18% of Hyundai and Kia’s sales, respectively. The Federation of Korean Industries announced the day before that if the COVID-19 crisis continues for more than six months, exports in 10 industries including semiconductors, petrochemicals, and automobiles are expected to decrease by 17.2 percentage points compared to the previous year.

Professor Jeong In-gyo of Inha University’s Department of International Trade said, "Due to the pandemic of COVID-19, overseas demand is sharply declining, and new contracts are likely to decrease, which will be fully reflected in export indicators starting this month." He added, "Most of last month’s volumes were likely contracted in January and February, so the real impact of COVID-19 has not yet begun." He further noted, "The decline in demand from North America and Europe is expected to significantly disrupt exports of automobiles and petrochemicals," and added, "By April and May, exports may decrease due to the worst production slump combined with unemployment."

Even the government sees limited potential for export recovery going forward. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki evaluated the March exports, saying, "Compared to the rapidly deteriorating global economy and trade situation, a sharp export shock has not yet fully materialized."

This content was produced with the assistance of AI translation services.