Ukraine Crisis Peaks... Direct Impact on Korean Cars and TVs

Concerns Over Disruptions in Energy Imports Expand

[Asia Economy Reporters Oh Hyung-gil and Sung Ki-ho] As Russia has launched military actions against Ukraine, Korean companies are also taking a direct hit. Concerns are rising that Korean companies will suffer direct damage, especially in major export items such as automobiles, TVs, and cosmetics.

If Western countries impose economic sanctions, extensive damage is expected, including not only the suspension of trade with Russia but also rising manufacturing costs due to raw material supply shortages.

According to the business community on the 22nd, about 120 Korean companies have entered the Russian market. Samsung Electronics and LG Electronics, which have domestic appliance production plants for the local market in Russia, are expected to inevitably suffer from sluggish appliance sales due to consumer downturns in Russia and neighboring regions amid rising military tensions.

Hyundai Motor, which has a factory in Saint Petersburg, Russia, produces about 230,000 vehicles locally. Since the local factory produces using parts imported from Europe, it is feared that direct damage will be unavoidable if a confrontation arises between Russia and Western powers.

There are 13 Korean companies with corporations and branches in Kyiv, the capital of Ukraine, including Samsung Electronics, LG Electronics, Hyundai Corporation, POSCO International, Hankook Tire, Hyundai Rotem, Ecovis, and Osstem Implant.

Samsung and LG, among others, do not operate production lines (factories) locally but mostly have sales corporations. As the possibility of armed conflict increases, local employees have been withdrawn, but the situation remains unstable.

In particular, if Western countries, starting with the United States, impose sanctions, companies with local corporations are expected to face disruptions in their business activities. Additionally, if Russia responds by blocking natural gas (LNG) exports, it will immediately lead to sharp increases in fuel and raw material prices, posing a burden on companies.

According to the Korea International Trade Association, Korea's major export items to Russia include automobiles and parts (40.6%), steel structures (4.9%), and synthetic resins (4.8%), accounting for about half of total exports to Russia. Imports mainly consist of energy products such as naphtha (25.3%), crude oil (24.6%), thermal coal (12.7%), and natural gas (9.9%), which make up more than 70% of total imports from Russia.

However, concerns about domestic energy price increases due to disruptions in energy imports are greater than the impact on exports at present. Based on last year’s data, Russia's share in Korea's energy imports is significant: naphtha (23.4%) ranks first, crude oil (6.4%) fourth, thermal coal (16.3%) second, natural gas (6.7%) sixth, anthracite coal (40.8%) second, and uranium (33.9%) second.

The semiconductor industry has also turned on a 'red light' as the proportion of rare semiconductor materials imported from both Russia and Ukraine reaches up to 50%. The semiconductor sector has prepared countermeasures by diversifying suppliers to cope with supply disruptions of semiconductor specialty gas raw materials from Ukraine.

The automobile industry is concerned about a decrease in local demand in Russia and parts supply disruptions due to the Russia-Ukraine situation. Last year, Korea exported about $2.496 billion (approximately 3 trillion KRW) worth of automobiles and $1.454 billion (approximately 1.75 trillion KRW) worth of automobile parts to Russia. These accounted for the top export items in trade with Russia, ranking first (29.2%) and second (15%) respectively in export share.

The heavy chemical industry is also worried about the sharp rise in raw material prices. With large fluctuations in international oil prices, the price of naphtha, a raw material for petrochemical products, is also likely to be affected. Although the export share to Russia is not high, the industry is continuously monitoring market trends in case global supply chain risks or a decrease in global demand occur.

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