Shanghai Closed for 3 Weeks... Korean Companies Heavily Dependent on Chinese Raw Materials and Parts Take Direct Hit

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POSCO, which has a steel product processing center in Kunshan, Jiangsu Province near Shanghai, China, has seen a significant decrease in steel finished product production since the area was locked down at the end of March. The situation is similar for most Korean companies located near Shanghai, including Hyundai Steel. A local Korean company official lamented, "There are talks that the Shanghai lockdown might be eased by the 20th, but it is expected to take considerable time before factories resume operations."

SPC Group recently closed all 130 Paris Baguette stores in Shanghai simultaneously. This accounts for about 43% of their stores in China, roughly half. Unlike factories that have at least partially resumed production, these stores have not even been able to open their doors, making a sales hit inevitable.

[Asia Economy Reporters Sunmi Park, Hyunseok Yoo, Seungyoon Song] As the Shanghai lockdown enters its third week, logistics and supply chain disruptions for Korean companies are intensifying. The ultra-strict lockdown is expanding not only in Shanghai but also to other cities such as Xi’an in Shaanxi Province and Zhengzhou in Henan Province, raising concerns that companies with production or logistics plants locally, or those producing and supplying products through cooperation with local firms, will suffer greater damage.

According to industry sources on the 18th, Samsung Electronics recently sent official letters to B2B laptop clients warning of possible supply delays. Samsung Electronics operates a home appliance factory in Suzhou, China, and runs a semiconductor production line in Xi’an. LG Electronics, which receives most of its parts from partner companies near the northeastern coastal region where its home appliance factory is located, is also preparing countermeasures amid concerns that the lockdown may be prolonged.

Due to the production structure of Korean companies heavily dependent on Chinese raw materials and parts, other industries are inevitably affected as well. Korea GM’s Bupyeong Plant 1 switched from a two-shift to a one-shift operation this month. This plant produces the Trailblazer, which accounts for 80% of Korea GM’s total sales. Korea GM is currently unable to receive timely supplies of brake system parts produced by local Chinese partner companies.

Regarding logistics, Shanghai Port claims to be operating 24/7 in emergency mode, but actual ship waiting times have become much longer than before. Especially for inland transportation, conditions have become stricter recently, requiring truck drivers transporting goods in and out of Shanghai to have access permits, exacerbating logistics difficulties. An industry official said, "The port is operating normally, but truck movement is not smooth. There is also a reluctance in cities around Shanghai to accept trucks departing from Shanghai, and with surrounding factories shutting down, cargo volumes have decreased." He added, "For refrigerated or frozen container boxes, there are separate storage warehouses, but as these fill up, the situation is becoming difficult."

There are even voices expressing greater concern about the situation after the lockdown is lifted. If export goods produced in China flood the market while the port congestion in the United States remains unresolved, the situation could worsen. Labor negotiations at West Coast ports in the U.S. are scheduled for next month, and depending on the outcome, strikes may occur, potentially prolonging the global logistics crisis.

In the distribution sector, as some regional lockdowns ease, Nongshim and Orion have recently restarted some production lines, but logistics movement remains difficult. Amorepacific also has a key production plant in Shanghai that produces about 100 million products annually, and plans to revise its strategy depending on whether the lockdown is lifted.

Kim Heeyoung, a research fellow at the Korea International Trade Association, said, "The bigger problem is that lockdown areas in China are expanding and prolonging, increasing the risk of lockdowns in other regions as well. Inland transportation companies are reluctant to move between regions, so if the lockdown continues long-term, Korean companies highly dependent on cooperation with China will inevitably suffer greater damage."

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