Korean Companies Face Comprehensive Impact from Fund Recovery to Export-Import Operations

As Sanctions on Russia Tighten
Letter of Credit Issuance Refused, Logistics Disrupted
Local Businesses Take Direct Hit

Payment Issues Top at 52.4%
Exclusion from SWIFT Could Worsen Impact
Companies Stockpile Inventory Amid Emergency

On the 27th, an armored personnel carrier used by Russian troops was engulfed in flames on the streets of Kharkiv, Ukraine's second-largest city. (Image source=AP Yonhap News)

[Asia Economy reporters Choi Dae-yeol and Moon Chae-seok] Company A, which imports and sells Russian pulp domestically, was recently refused the issuance of letters of credit by four domestic banks. As it became difficult to make payments without being able to create letters of credit guaranteed by banks, disruptions in transactions became inevitable. Company B, which exports tractors overseas, is now considering whether to produce the quantity to be sent to Russia next month. Company C also decided to send semiconductor equipment to Samsung Electronics' factory in Russia next month, but it is still unclear whether the logistics system will operate normally.

As the international community increases sanctions against Russia, Korean companies operating locally or trading with local companies are being directly hit by refusals to issue letters of credit, non-recovery of funds, disruptions in parts supply, and logistics networks.

On the 28th, the Korea International Trade Association surveyed major difficulties faced by companies related to the Ukraine crisis. As of that morning, payment issues accounted for the largest portion at 52.4%, followed by logistics (33.3%) and information provision (14.3%). This was before the impact of Russia being cut off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was reflected, so the disruption in payment settlements for Korean companies due to SWIFT exclusion is expected to worsen. A representative from a major domestic conglomerate said, "Since the sanctions currently target local Russian banks, companies dealing with foreign banks are less affected, but they cannot avoid indirect impacts. In the past, local economic conditions fluctuated due to external variables like oil prices, so if this situation prolongs, losses will inevitably increase."

The domestic energy and parts industries have begun self-preparation by securing raw material inventories. Rare gases such as neon and krypton, essential for semiconductor processes, have a high dependency of over 50% on Russia and Ukraine, and current inventory levels are estimated to cover about three months. While equipment can operate for now, if the current situation continues, raw material supply disruptions could halt factory operations. Some automakers, including Renault, have already decided to temporarily stop operating their vehicle plants in Russia due to parts supply issues.

Park Kang-ho, an analyst at Daishin Securities, said, "Supply disruptions of neon gas used in semiconductor photolithography processes could significantly affect semiconductor production volume." He added, "Memory semiconductor companies currently hold up to eight weeks of inventory, higher than the normal level of four weeks, but if military actions cause prolonged distribution interruptions, the impact on semiconductor production will be severe." A representative from the domestic automotive parts industry said, "We have secured some inventory and liquidity, so there is no immediate problem with factory operations, but we are closely monitoring the situation as we expect impacts if the crisis prolongs or additional sanctions follow."

The petrochemical industry's risk of rising prices for Russian naphtha is also imminent. According to the industry, Korea's annual naphtha imports amount to about 29 to 30 million tons, with Russian naphtha accounting for the largest share at 20-25%. The industry has secured imports for the next two months, but if the war lasts longer, they plan to purchase naphtha from the Middle East and India or increase their own operating rates to resolve the issue. Refining and petrochemical companies are paying attention to whether the U.S. will ease sanctions against Iran. An industry official said, "The U.S. is still sanctioning Iran, so there are no discussions about importing Iranian crude oil yet, but if the war prolongs and the pace of lifting sanctions on Iran accelerates, it will help ease crude oil supply."

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