Mass Cancellations in US and Europe... May Manufacturing Plants on the Brink of Shutdown

Complete car manufacturers to shut down for at least one week in May
Hyundai Motor and Korea GM consider partial plant shutdowns in May
Global demand contraction in IT and home appliance industries
Steel industry on alert over automotive steel sheet supply

[Asia Economy Reporters Hyewon Kim and Jihee Kim] Amid the unprecedented crisis faced by key industries due to the impact of the novel coronavirus infection (COVID-19), our companies are suffering a second blow as order cancellations from the US and Europe have surged since April. In particular, the shockwaves initially felt by consumer goods companies such as smartphones, home appliances, and automobiles due to demand contraction caused by COVID-19 are being fully transmitted to downstream industries, deepening the complexity of the crisis.

According to the business community on the 21st, five domestic automakers directly hit by COVID-19 are expected to conduct at least one week of shutdowns in May as they face not only a decrease in export volumes but also an imminent depletion of imported parts inventory.

Dealers in North America and Europe, which account for more than 63% of finished car sales, have entered indefinite shutdowns, resulting in a halt in new orders and a series of cancellations of existing orders. A representative from an automaker said, "More than 30% of orders planned for production this month have been canceled," adding, "As the inventory of parts imported from the US and Europe continues to decline, shutdowns next month are inevitable."

Hyundai Motor Company has announced a planned shutdown of its Ulsan Plant 2 in early May, while Korea GM is deliberating on the operation plan for its Bupyeong Plant 1, which has a high export ratio. Currently, they are considering either a two-week shutdown from May 1 to 15 or working three weekdays (Tuesday to Thursday) throughout May.

The commercial vehicle line, including buses, is also in an emergency due to excess inventory. Kia Motors will halt operations at its Hanam bus line for five days from the 23rd to the 29th and has reduced its monthly production plan by 40 units through June.

Disruptions in operations caused by the collapse of the global parts supply chain are expected to peak next month. Following Kia Motors' temporary suspension of production of the popular Seltos model due to issues with Indian parts supply, inventory depletion of cluster parts is imminent. Korea GM, which adjusts production plans daily, will decide on a shutdown of Bupyeong Plant 1 on May 6-7 depending on the supply situation of parts imported from the Philippines.

Global demand for IT and home appliance industries such as smartphones and TVs has also sharply dried up. According to SK Securities, global smartphone shipments this year are expected to decline by 20-25% from the previous year, totaling 1.07 billion to 1.13 billion units. The industry expects to see signs of smartphone demand recovery by region around April-May for North America and Europe (excluding China), and around May-June for emerging markets including India. Youngwoo Kim, a researcher at SK Securities, predicted, "The sharp contraction in smartphone demand will have a short-term negative impact on downstream component industries such as chipsets, mobile DRAM, MLCC, and camera modules."

Sales of Samsung Electronics' home appliances and visual display divisions, which have a large sales share in the US and Europe, have already plummeted by more than 50% as of mid-month, with the decline in sales accelerating. An industry insider said, "We have been feeling the sales cliff in key markets since the end of last month."

Steelmakers supplying automotive steel plates worldwide are also on high alert as order cancellations continue following demand contraction. The steel industry has mainly responded by advancing and extending equipment maintenance periods to manage volume. A steel industry official said, "Export order cancellations from the US and Europe have increased by more than 10%," adding, "Since we separately receive orders for low-priced materials and sell them, there is no immediate significant change in production volume, but if steel production cuts occur, it would be a sign that the situation is at its worst." Hyundai Steel is reported to have reduced electric furnace production by 30% and is also considering reducing blast furnace output.

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