Exports of Korean cars, ships soar on strong demand

Hyundai Heavy Industry Co.’s shipyard in Ulsan [Photo provided by HD Hyundai Heavy Industries]

South Korean shipyards are regaining vitality on the back of strong demand, with the country’s top three shipbuilders seeing more than a 16 percent surge in their order book in May from a year ago.

According to multiple sources from the shipbuilding industry on Wednesday, HD Korea Shipbuilding & Offshore Engineering Co., which owns HD Hyundai Heavy Industries Co., HD Hyundai Mipo Dockyard Co., and HD Hyundai Samho Heavy Industries Co., Samsung Heavy Industries Co., and Hanwha Ocean Co. had an order backlog of 724 vessels valued at $119.4 billion as of end of May.

The order balance is up 16.3 percent from the same period a year ago and is equivalent to three years’ work of work for the three shipbuilding majors.

Vessel exports in the first 20 days of June also soared 148.7 percent from the same period a year ago, according to Korea Customs Service, as ships ordered in the last two to three years are delivered to the ship owners.

Ships are declared as exports at the time of delivery.

The volume of Korean shipbuilding orders reached $19.5 billion in 2020, $44.2 billion in 2021, and $46.2 billion in 2022. As these orders are completed after two to three years of construction and are delivered, they are now being reflected in exports.

The shipbuilders, in the meantime, are hiring more workers to meet growing demand.

Hanwha Ocean announced its first hiring plan for this year since it was acquired by Hanwha Group. Samsung Heavy Industries also saw its payroll increase to 9,121 in March from 8,775 in December last year. The company has also been more aggressive in hiring foreign workers for production jobs such as welding and painting.

The defense industry is another area that is driving Korean exports.

Defense-related orders are expected to reach an all-time high of $20 billion this year, the government estimates.

Defense orders have surged to $7.25 billion in 2021 and $17 billion in 2022 after remaining in the $3 billion range between 2013 and 2020.

Exports soared after Poland purchased Korean arms worth an estimated 20 trillion won ($15.5 billion) in July last year.

According to the Korea International Trade Association, Korea exported $255 million worth of tanks to Poland in the first four months of this year. The second and third batches are expected to be delivered in the second half of this year and next year.

Hanwha Investment & Securities Co. expects sales of the country’s five major defense companies to rise sharply from 16.81 trillion won last year to 20.67 trillion won this year and 23.62 trillion won next year.

[Courtesy of Hanwha Aerospace]

The five companies are Hanwha Aerospace Co., Korea Aerospace Industries Ltd. Hyundai Rotem Co., Hanwha Systems Co., and LIG Nex1 Co.

The mainstay chips, however, are yet to see a rebound in exports.

The semiconductor industry has not shown any signs of recovery since it entered its worst recession in the second half of last year. However, major memory chip companies such as Samsung Electronics Co., SK hynix Inc., and Micron Technology Inc. have all started to cut production, raising expectations that the effect of the cuts will begin in the third quarter.

There are also hopes for a rebound in the second half of the year. Chip industry insiders note that the decline in dynamic random access memory (DRAM) prices will bottom out.

According to market research firm DRAM eXchange, the fixed transaction price of general-purpose DRAM (DDR4) for PCs was $1.4 in May, down 3.45 percent from the previous month.

The oil refining industry is also expecting improved performance in the second half of the year. Demand for gasoline and jet fuel is expected to increase in the second half as travel demand increases.

“Refining margin was around $2 per barrel in March and April, but as of the third week of June, they stood at around $5.5 per barrel,” said an oil refining industry official. “We expect the refining margin to gradually increase if oil demand improves while oil prices remain stable.”

The gradual improvement in exports is another story for small- and mid-size enterprises.

“There is a time lag for the impact of the economic upturn to reach SMEs,“ said an official from Korea Small Business Institute. “It is still too early to say that SME exports have turned around.”

A survey by the Korea Federation of SMEs shows that the export outlook for SMEs fell to 85.9 in June from 86.9 in May, marking the fourth straight month of decline.

The institute noted that SME exports continue to be sluggish except for automobiles and auto parts. As of April, automobile exports among the main export items of SMEs increased by 152.6 percent on year.

The biggest variable in the recovery of SME exports is considered the depreciation of the Japanese yen. Korea and Japan have similar export structures, so if the yen makes Japanese products more competitive, Korean products suffer relatively.