Export Halved from May 1-10... Amplified Impact of COVID-19 (Comprehensive Report 2)

Exports Plunge 46% Compared to Last Year by the 10th
Even Considering Working Days, Down 30.2%
Automobile Exports Shrink Over 80%
April Export Decline May Exceed Expectations
Largest Drop Since January 2009 Feared
Overseas Market Paralysis Likely to Prolong Slump
Ministry of Industry: "Shortage of Working Days Also Affects"
Experts: "Future Outlook Is Even Worse"

[Asia Economy Reporters Chaeseok Moon, Soyeon Park, Suyeon Woo] As the novel coronavirus disease (COVID-19) strikes the global economy, South Korea's export volume in early this month has fallen to half of last year's level. Automobile exports decreased by more than 80%, and exports to major countries such as the United States and the European Union (EU) dropped by over half. Analysts suggest that the export shock caused by COVID-19 is intensifying over time.

According to the Korea Customs Service on the 11th, the export amount (provisional clearance basis) from the 1st to the 10th of this month was $6.919 billion, down 46.3% ($5.96 billion) compared to the same period last year. The number of working days during this period was 5, which is 1.5 days fewer than the same period last year. Considering the working days, the average daily export amount was $1.38 billion, a 30.2% decrease from $1.98 billion in the same period last year. Imports during this period were $9.551 billion, down 37.2% ($5.65 billion) compared to the same period last year. As a result, the trade balance recorded a deficit of $2.632 billion.

Due to the global demand slump caused by COVID-19, semiconductor exports decreased by 17.8% compared to the same period last year. Considering that semiconductor exports fell by 14.9% in April, it is interpreted that exports have worsened further this month. By product category, passenger cars (-80.4%), wireless communication devices (-35.9%), and petroleum products (-75.6%) decreased, while ships (55.0%) increased. In the case of passenger cars, it is analyzed that the combined effects of overseas factory and dealership closures and demand contraction due to COVID-19 influenced the decline. Petroleum products saw reduced sales volume due to demand contraction and a sharp drop in export unit prices due to falling oil prices.

By country, exports to China (-29.4%), the United States (-54.8%), the EU (-50.6%), Vietnam (-52.2%), Japan (-48.4%), and the Middle East (-27.3%) decreased. Exports to major countries such as the United States and the EU, which maintained lockdowns amid the spread of COVID-19, fell by more than half.

If this trend continues, the export decline this month could widen following the -24.3% recorded in April. As the global economic contraction due to COVID-19 persists, the outlook for South Korea's exports is not bright. Professor In-Kyo Jung of Inha University's Department of International Trade said, "Because existing contracts and inventories were utilized, exports came out to this extent despite being halved," adding, "Exports could worsen by the end of this month." He further expressed concern, saying, "The key is how long the COVID-19 situation will last. Among the Group of Twenty (G20) countries, it is still difficult to find a country where COVID-19 has stabilized, so export sluggishness may continue in the second half of the year."

The lockdowns and shutdowns imposed by major countries due to the impact of COVID-19 are analyzed to have dealt a fatal blow to exports in early this month. Although it is still early in the month, if this trend continues, the export decline this month could exceed the -24.3% recorded in April. There are also concerns that it could surpass the record monthly largest export decline of -34.5% recorded in January 2009.

◆ U.S., Europe, and India Automobile Markets Temporarily Closed = The product category that decreased the most is automobiles. The decline in passenger car exports this month is because the automobile markets in the United States, Europe, and India?key export markets for domestic automakers?have effectively shut down. Since March, due to shortened dealer operations and forced retail store closures caused by COVID-19, normal business operations became impossible, leading to mass cancellations of scheduled export volumes.

Hyundai Kia Motors' domestic plants had already escaped the COVID-19 impact zone early on, but overseas order volumes decreased, causing the entire domestic plant to shut down during the recent Golden Holiday (April 30 to May 5). Renault Samsung Motors completely ended the consignment production of its main export model, the Nissan Rogue, at the end of March, and the Busan plant line will be stopped until the 10th of this month. Korea GM managed to secure export volumes of the new Trailblazer to North America, but the COVID-19 outbreak has put a brake on exports.

Experts expect that domestic automaker exports will remain in a slump for some time as overseas market demand freezes due to COVID-19. Eunyoung Lim, a researcher at Samsung Securities, said, "The U.S. market's decline was not as severe as expected due to reliance on zero-interest installment financing, but Europe, India, and Latin America face difficulties implementing aggressive fiscal policies like the U.S.," adding, "Demand recovery in other countries in the second quarter is very uncertain."

The main cause of the decline in petroleum products is the sharp drop in petroleum demand due to movement restrictions and sluggish global petroleum product-using industries, combined with falling oil prices that lowered product unit prices. SK Energy, the industry's leader, reduced its refinery operating rate to 85%, and GS Caltex and Hyundai Oilbank also adjusted operating rates by advancing scheduled maintenance. An industry insider said, "The export unit price of petroleum products fell by about 60-70% compared to the same period last year, and individual companies entering scheduled maintenance reduced export capacity."

Signs of demand decline were also seen in semiconductors. The spot price of a major component, DRAM, was lower than the fixed transaction price for the first time this year. This increased concerns about uncertainty due to demand decline. According to DRAMeXchange, a market research firm, on the 8th, the spot price of PC DRAM (DDR4 8Gb standard) was $3.26 per unit, below last month's fixed DRAM transaction price of $3.29.

The government assessed that the poor export performance of countries such as the U.S. and EU, which implemented lockdowns and shutdowns amid the ongoing spread of COVID-19, was a painful factor. Na Seung-sik, Director of the Trade and Investment Office at the Ministry of Trade, Industry and Energy, said, "Since the actual number of working days was only five, it is difficult to judge that exports were sluggish based solely on the performance from the 1st to the 10th," but added, "It appears to have been affected by the fact that automobile factories worldwide stopped operating and rested, and that the market itself has not resumed to pre-COVID-19 levels despite factory shutdowns."

◆ Experts Advise Preparing for Prolonged Shutdowns = The government announced bold policies to induce the return of companies that moved overseas and to increase foreign direct investment (FDI). In his third anniversary speech, President Moon Jae-in said, "We will promote the return of Korean companies and attract advanced overseas industries to make Korea the 'world factory of advanced industries,'" adding, "We will pursue bold strategies to attract both the return of Korean companies and overseas advanced industries and investments."

Minister of Trade, Industry and Energy Sung Yun-mo also said in an interview with Bloomberg on the 7th, "Due to this (COVID-19 global) pandemic, more countries may accelerate efforts to bring factories back home through so-called 'redistribution strategies,'" adding, "This pandemic is an opportunity for Korea to solidify its position as a control tower in Asia supplying key parts and materials."

However, experts expressed more concern about the future outlook than the diagnosis that South Korea's export performance was relatively better than other countries. Since the world was locked down last month and there were few places to sell products, export sluggishness was predictable, but there is concern that South Korea may remain helpless against global shutdowns even after the second half of the year. Professor In-Kyo Jung of Inha University's Department of International Trade said, "Although Korea is a model country in quarantine and aims to attract companies, domestic laws related to advanced industries have many shortcomings," adding, "It is unrealistic to expect foreign companies to pack up and come to Korea just because of President Moon's words, especially when innovative companies like Tada are being forced to close. The ruling party's policy execution will be crucial."

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