Export Impact Inevitable and Raw Material Supply Unstable... "Closely Monitoring Ukraine Crisis" (Comprehensive)

Crisis at Peak... Korea Faces Direct Hits on Cars and TVs
Withdrawal of Local Staff in Ukraine... Situation Unstable

On the 22nd, after Russia approved the independence of the conflict area in Ukraine and ordered troop deployment, citizens at the Seoul Station waiting room are watching news related to the Ukraine situation. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Oh Hyung-gil] As Russia has launched military actions against Ukraine, Korean companies have been directly 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, widespread damage is expected, including not only the suspension of trade with Russia but also increased 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 recession in Russia and neighboring regions amid rising tensions of armed conflict.

Hyundai Motor Company, which has a factory in Saint Petersburg, Russia, produces about 230,000 vehicles locally. Since the local factory produces using parts imported from Europe, concerns are growing that direct damage will be unavoidable if a confrontation occurs 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 As the possibility of armed conflict increased, local employees were withdrawn, but the local situation remains unstable.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 a sharp rise in fuel and raw material prices, posing a burden on companies.

According to the Korea International Trade Association, Korea's main export items to Russia are automobiles and parts (40.6%), steel structures (4.9%), and synthetic resins (4.8%), accounting for about half of total exports to Russia. Imports include naphtha (25.3%), crude oil (24.6%), bituminous coal (12.7%), and natural gas (9.9%), with energy imports accounting for more than 70% of total imports from Russia.

However, concerns about rising domestic energy prices due to disruptions in energy imports are greater than the current impact on exports. As of last year, Russia's share in Korea's energy imports was significant: naphtha (23.4%) ranked first, crude oil (6.4%) fourth, bituminous coal (16.3%) second, natural gas (6.7%) sixth, anthracite coal (40.8%) second, and uranium (33.9%) second.

The proportion of rare semiconductor materials imported from both Russia and Ukraine reaches as high as 50%, turning a 'red light' on the semiconductor industry, a key export sector. The semiconductor industry has prepared countermeasures by diversifying suppliers in response to supply disruptions of semiconductor specialty gas raw materials from Ukraine.

[Image source=Yonhap News]

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 were the top export items to Russia, accounting for 29.2% and 15% of exports, respectively.

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.

However, since the export share to Russia is not high, there is no direct impact, but the market trend is being continuously monitored in case of global supply chain risks or a decrease in global demand.

According to the Federation of Korean Industries, in a business survey index conducted on the top 600 companies by sales, the Business Survey Index (BSI) for the petroleum refining and chemical sectors in March was recorded at 88.5, significantly below the baseline.

This is interpreted as an effect of concerns over profitability (refining margins) deterioration due to the sharp rise in crude oil prices since the beginning of the year amid geopolitical conflicts surrounding Ukraine.

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