South Korea more reliant on China for battery materials

[Photo by MK DB]

South Korea’s dependence on China for battery materials is growing amid sluggish exports, with trade balance in the red for 15 consecutive months, government data showed on Thursday.

From January to April this year, among the top five imports from China, batteries and information technology (IT) items such as lithium-ion batteries, lithium oxide and lithium hydroxide, and smartphones have seen significant increases. By April, South Korea’s dependence on imports of lithium-ion batteries surged to 95 percent.

South Korea recorded exports of $52.24 billion and imports of $54.34 billion in May, resulting in a trade deficit of $2.1 billion. Trade deficit for the year has reached $27.34 billion and this figure accounts for 57 percent of the total trade deficit last year, according to data from the Ministry of Trade, Industry and Energy.

The sharp decline in outbound shipments of semiconductor products, the largest export category for South Korea, recorded a drop of 36.2 percent on-year, amounting to $7.37 billion, had a significant impact on the overall decline in exports.

“The scale of the trade deficit has been continuously shrinking compared with the first quarter, and the daily average export volume is showing a recovery trend. From June onwards, we expect the trade balance to improve,” said Trade, Industry and Energy Minister Lee Chang-yeong.

Earlier, the Korea Institute of Industrial Economics & Trade, a state think tank, predicted that the country’s overall trade balance would post a $35.3 billion deficit this year, but the ministry said it is a fairly conservative outlook.

“It is believed that the prediction was based on an excessively conservative assumption, not considering the improvement in the semiconductor market in the second half of the year and the effect of China’s economic recovery,” said Kim Wan-ki, head of the trade ministry’s trade and investment bureau, during a press briefing. “We expect the trade deficit for this year to be significantly lower than the forecast by the institute.”

Since the beginning of this year, the monthly trade deficit has been narrowing starting with $12.53 billion in January, followed by $5.32 billion in February, $4.74 billion in March, $2.65 billion in April and $2.1 billion in May.

However, the decline in imports of key export items such as semiconductors (-14.6 percent), steel (-17.6 percent), and computers (-22.9 percent) last month remains a risk factor. Exports of petroleum products and petrochemicals also fell by 33.2 percent and 26.3 percent, respectively, due to the decline in international oil prices.

South Korea is facing the possibility of a recessionary surplus, with imports falling more than exports.

“The timing of a trade surplus turnaround is expected to be faster than the rebound in exports, which could lead to the emergence of recessionary surplus,” said Jang Sang-sik, head of trend analysis at Korea International Trade Association.