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  Korea Report - May 2007
  Author : Hwang & Co     Date : 07-06-07 09:49     Hit : 41364    
Topics.
-FTA between USA and Korea on the way to official conclusion.
-Korea start nego with EU for FTA.
-President Roh tries to restrict information channel to media.
-New law gives residents to supervise local government.
-Jury system to be applied from next year.
-Korean actress won Canne award.
-NK delayed shut down of its nuclear reactor.
-Korea launched first Aegis ship.
-Trains crossed DMZ between 2 Koreas.
-Korea set monthly export record of $31.25 bil.
-Korean firm paid largest dividends to oversea¡¯s investor.
-Korea put all out effort for energy.
-Chaebols¡¯ surplus fund hiked, piling the cash.
-Samsung executives convicted for illegal transfer of wealth.
-Chaebols, including SK, Kumho Asiana, CJ Group and Hanjin Heavy turn into holding company system.
-POSCO starts the production on its FINEX technology.
-Industrial espionange cases indicted.
-KOSPI broke 1700.
-Shipbuilding stocks rallied following their earning surprise in the first quarter.
-HHI received 31 newbuilding orders in May.
-MJ Chung, defacto owner of HHI, became the richest in Korea.
-DSME develop ¡®sLNGc¡¯ system to prevent gas evaporation in LNG carrier.

GOVERNMENT AND SOCIETY

The US Trade Representative (USTR) reaffirmed that the new trade policy, applies to all 4 FTAs with Korea, Panama, Peru and Colombia, is waiting for congressional approval. Seoul and Washington struck the trade deal on April 2 after nearly 10 months of negotiations. US negotiators said that labor and environment chapters weren't completed when 2 countries struck the deal and the chapters may have to be reopened with SKorea. On May 10, the US Congress made a trade policy agreement with the Bush administration, aiming to strengthen labor and environmental protections in free trade deals. Korea clearly stated not to give in to a possible request by USA for renegotiations of the bilateral FTA.
Korean cabinet meeting passed a bill to establish the permanent committee dedicated to FTAs, which will be jointly headed by the prime minister and a civilian co-chair person with the participation of 15 civilian experts and 15 government officials, aiming to provide and gather information and to draw up plans to maximize the benefits of trade pacts. The committee will also act to reduce social discontent arising from FTA and review local laws and regulations.
The USTR reaffirmed its plans to officially sign a FTA with Korea on June 30, which is the end of the 90-day period for congressional review of the proposed trade pact. Korea and USA released a draft text of the FTA, but a conclusive text is expected sometime next month. A public hearing is scheduled late next month.
 
Korea held during May 6-10 for the first round FTA negotiations with the European Union in Seoul. The EU is the second-biggest destination for Korean exports after China. The two-way trade reached $79.4 bil in 2006. Last year, accumulated investment from the EU totaled $40.5 bil, followed by USA with $36.6 bil and Japan with $19.5 bil. Seoul believes a trade pact with the EU would help advance the country not only economically but also geopolitically. Currently, major Korean export items to EU are automobiles, consumer electronics, semiconductors, and ships. The EU has shown interest in Korea's service sector, especially its finance, special delivery, accounting, legal, and news services. The second and third rounds of the talks are scheduled for July and Sept in Brussels.

President Roh Moo-hyun agreed to explore initiating access to Mongolia's coal and uranium mines following a summit with President Nambaryn Enkhbayar in Seoul. The 2 leaders also agreed to create a cooperative committee on trade affairs to help expand two-way trade and investment. Mongolia has an estimated 10 billion tons of coal and up to 3 million tons of copper, among other minerals.
SKorea and India agreed to hold joint naval drills to fight terrorism and piracy, and improve rescue operations and expand exchange visits by high-ranking defense officials and cadets. India pledged its support for the denuclearization of NK in response to Korea's calls for the support of the six-nation nuclear talks. Seoul is interested in attracting India to its defense products because India is a rising military power that has potential to influence the global defense market.

The Cabinet passed a set of regulations to reduce the current 37 press rooms in the administrative branches consolidated into 4 "combined briefing rooms" in government complexes in central Seoul, Gwacheon and Daejeon. Under the new plan, journalists will not be allowed to be stationed in any government offices. The government will communicate with the media only through press releases and official briefings. Most government offices will be off-limits to reporters. Roh, who has been on uneasy terms with Korea's major newspapers, sharply criticized journalists from privileged companies for "colluding" to determine the tone of news.
The majority Grand National Party pledged to nullify the plan during the June parliamentary session. Legal groups are preparing a constitutional petition, claiming it contravenes press freedom as stated in the Constitution. The general public, journalists and media groups will participate as co-claimants. Up to 85.7% of managing editors in 18 local media outlets are opposed to the new plan. Even the ruling Uri Party agrees to cooperate with GNP to block the plans.
 
Tensions are mounting within local administrative bodies as a new law enabling residents to oust incompetent local government chiefs and council members comes into effect. The new law, approved by the National Assembly in May last year, is aimed at giving residents substantial authority to supervise the management of local governments through a "wake-up call" to corrupt and incompetent officials. Local leaders would be sacked if over 50% of residents vote against them. The new recall ballot system is weighing heavily on 7 ward mayors in Seoul who recently went on what they called an "inspection tour" of South American countries, with their 12-day itinerary including visits to popular tourist sites.

The jury system for criminal cases will be introduced for the first time from Jan 1 next year, as one of the judicial reform measures approved by the National Assembly. Between 100 and 200 selected criminal cases a year will be judged by a group of up to 9 civil jurors. A verdict will be decided by a majority vote, and the jury will be comprised of 9 citizens for a murder or corruption case, 7 for major felonies, and 5 for a case where the defendant confesses the crime.
 
The Council for Presidents of 110 private universities called for the government to ease regulations on student admissions, demanding to eliminate the ¡°three nots¡± policy and grant more autonomy to universities when choosing their students. The ¡°three nots¡± policy refers to the government's measures under which it forbids universities from managing their own entrance exams, ranking students based on their high schools and accepting donations for student admissions. President Roh recently said scrapping the policy will only forfeit equal education opportunities in the nation.

The government decided to attach tougher conditions to its KW4.9 bil ($5.2 mil) in funding to 140 civic groups this year. If the groups hold any illegal demonstrations or if members are arrested for involving in violent protests, financial support will be retracted and the group will be banned from future subsidies. Violent demonstrations last year caused an estimated KW670 mil in property damage nationwide.
 
3 SKorean executives and 8 Filipino laborers with Daewoo Engineering and Construction were kidnapped on May 3 following a shootout at a power plant construction site in Port Harcourt in Nigeria. All of them were released after 6 days in captivity. Korean officials said negotiations were difficult because the kidnappers were not a known group. It wasn't yet clear whether any ransom was paid. This was the third time that Daewoo workers have been abducted in Nigeria.
 
Korean scientists have found a link between a hepatitis B protein and liver cancer that could advance early detection and treatment of the cancer.
Drug authorities have given the go ahead to the first domestically developed cancer drug by Creagene Inc, a local bio-venture company, for sale in the domestic market. The new kidney cancer drug has been proven to suppress the progress of cancer cells by 66% during the firm's 4 year clinical test on severe patients from July 2003.
The government-invested Stem Cell Research Center will be responsible for verifying stem cell lines, a step being taken to improve the transparency and credibility of stem cell research. Currently, Korea's technology of producing and extracting stem cell lines are quite advanced, and a total of 41 stem cell lines have been secured at Seoul National University, Pocheon Cha University and Miz Medi Hospital. Once stem cell lines are verified, they can be distributed to research centers. The Stem Cell Research Center has successfully finished DNA tests on 9 stem cell lines. The other 32 stem cell lines will also undergo DNA tests in the years to come.
 
The number of newborns in Korea increased for the first time in 6 years in 2006, up 3.3% on year. Korea's overall fertility rate also increased, to 1.13 last year from the record-low figure of 1.08 in 2005. The statistics office estimated Korea's population to start declining from 2020, shrinking by more than 12% by 2050. While the global population will continue to grow steadily from the current 6.5 billion to 9.3 billion in 2050, despite sharp fall in developed countries.

Korean actress Jeon Do-yeon, 34 years old, who stars in a tragic movie on death and faith, "Secret Sunshine", won the Cannes film festival's best actress award. Jeon is the second actress from Korea to win an award at a major international film competition, after Kang Soo-yeon won the best actress award at the 1987 Venice Film Festival for her role in "Surrogate Mother." Jeon has performed a wide range of roles from that of an unfaithful urban wife (Happy End) and a countryside tomboy (My Mother, the Mermaid) to a reticent, tradition-ridden widow (Untold Scandal).
Kim Mi-hyun beat Juli Inkster by one hole in a sudden death playoff to win her first US LPGA title this season in the SemGroup Championship during May 3-6 at Cedar Ridge Country Club in Broken Arrow, Oklahoma. It is her eighth career title on the US LPGA tour. Kim finished at par for a total of 3-under 210 to tie with Inkster. Kim then parred the first hole of the playoff to win the championship with prize money of $210,000, while Inkster bogeyed. 3 other Korean players, including Kim Young and Song A-ree, finished in the top ten in the tournament.
Korea's Kim Young fired a four-under par 68 in final round to capture the $1.3 mil Corning Classic during May 24-27 by 3 strokes for her first triumph in her 8 years of LPGA carrier. She finished 72 holes on 20-under par 268 with compatriot Kim Mi-hyun and American Paula Creamer on 271.

NORTH KOREA AND NATIONAL DEFENSE

North Korea missed the April 14 deadline to shut down its main reactor, as agreed under a Feb 13 deal in 6-way talks, citing a failure to release its funds at Macau-based Banco Delta Asia. The $25 mil in the accounts was freed from BDA for withdrawal earlier in April, but has not been moved for unspecified reasons. NK reiterated that it will immediately start shutting down the Yongbyon reactor as soon as it succeeds in transferring the BDA funds. NK is reportedly having difficulty finding an alternative bank to accept its accounts as international banks are hesitant to receive the money that has been blacklisted by Washington.
SKorean government officials have remained not to interfere the process of the BDA issue, saying that it should be solved by NK, USA and Macau authorities, but both USA and SKorea say the yearlong sanction has been enough to show NK the severity of international financial seclusion.

US State Department listed NK as a state sponsor of terrorism, along with Iran, Cuba, Sudan and Syria, despite NK¡¯s repeated urge to take its name off the terrorism list. As long as it is identified as a state sponsor of terrorism, NK faces US sanctions, including US opposition to loans from the World Bank and other international financial institutions. These sanctions are critical to the cash and energy strapped NK. NK has not been involved in any terrorist acts since the bombing of the Korean Airlines flight in 1987. USA seems more willing than previously to take NK off the list, after the Feb 13 Beijing agreement, but they said that NK has to do the same as Libya did. Libya renounced terrorism and abandoned its weapons of mass destruction programs in 2003.
 
Since 2005, the Seoul government has sought to purchase 4 Global Hawks, $45-mil unmanned surveillance plane, from USA in an effort to enhance domestic surveillance capabilities, in line with its plans to recover wartime operational control from USA by 2012. But the strong Russian-led opposition is posing a hurdle to the plan. Overseas sales of the planes are currently prohibited under an international weapons export control regime, which USA tries to revise. However, Russia and other member countries to the regime are opposed, concerning that it would undermine their own unmanned aerial vehicle technology. A revision requires consent from 34 partners including Russia, Canada, France, Germany, Italy, Japan and UK. The Global Hawk can cruise at a high altitude of 20 km for up to 42 hours, identifying 30 cm wide materials on the ground and provide geographic images of areas up to 3,000 km wide.
The Navy launched its first destroyer equipped with the Aegis air defense system,  becoming the world's fifth nation after the USA, Japan, Spain and Norway to operate the computer-based system which links radar and weapons to simultaneously detect, track and engage hundreds of aircraft and missiles. The Navy aims to deploy 2 more 7,000-ton class Aegis destroyers in 2010 and 2012. Its hull was built by HHI. Its missile systems can fire at up to 122 targets within a minute, including aircraft, surface ships, submarines and ballistic missiles. The military will invest more than KW3 tril ($3.2 bil) to build 3 Aegis vessels by 2012.
SKorean military decided to deploy 9 x 3,000-ton-class submarines during 2018-2021. The submarine will be equipped with a more advanced air independent propulsion system which will extend the underwater operation period to 7 times longer than that of conventional submarine. For the first phase, the military will spend a KW2.5 tril ($2.7 bil) to build 9 x 1,200-ton submarines, and for the second phase, 9 x 1,800-ton submarines thereafter.
 
Two trains, one from the South and the other from the North, one running along the west coast, and another on the east, crossed the demilitarized zone between the divided countries on May 17 for the first time in more than 50 years since the end of the Korean War (1950-1953). The SKorean government considers the reconnection to bring positive developments in military and economic relations with the North. The key inter-Korean projects, such as the Gaeseong Industrial Complex and the tours to NK's Mt Geumgang, were expected to receive more impetus.
The reconnecting of the cross-border railways is the symbol of a reunited Korea. Although the test-run of 2 railways running was completed in just one day, it took 7 years of waiting, since 2 Koreas agreed to reconnect the railways for the first time in Feb 1992. For the reconnection, South and North met a total of 61 times, including 21 ministerial and working-level meetings and 20 economic cooperation meetings. The South spent about KW180.9 bil to help NK restore their side of the stacks. NKorean military, however, remain apprehensive about SKorean efforts to reopen the railways, which would inevitably require the alleviation of military tensions along the DMZ.
Government expected that once NKorean railways are fully restored, it would eventually expand logistics capabilities to and from China and Russia.
 
NK carried out its first missile tests in almost a year, by launching the short-range missiles into the East Sea, drawing a sharp response from Northeast Asian countries including Japan. USA played down NK's missile tests, calling them a "routine exercise" amid a continuing logjam in implementing a nuclear disarmament deal.

ECONOMY AND POLICY

The Samsung Economic Research Institute has bumped up its forecast for Korea¡¯s GDP growth rate in 2007 from 4.3% to 4.5%, citing the fast recovery of domestic consumption and investment. SERI also forecasted that Korea would not achieve the national per capita income of $20,000 this year.
 
Korean exports rose nearly 11.9% on year to a monthly record in May recording $31.25 bil, thanks to brisk shipments of steel and cars. The imports rose 13.6% to $29.8 bil on year, posting the country¡¯s trade surplus $1.48 bil in May. Korea marked a trade surplus of $1.24 bil with USA in March. The export was $4.18 bil and $2.94 bil in imports, making the cumulative surplus for first quarter at $3.88 bil.
Beef imports to Korea surged 22.9% in the first quarter of this year to a total of 62,481 tons worth $267 mil, a 42.7% jump on year. US beef will be sold in the country for the first time since Dec 2003, expecting to raise the import volume and narrow the gap in the trade surplus. Australian imports topped the list recording a total of 46,024 tons.
Korea's current account deficit widened to US$1.93 bil in April, compared with a $1.64 bil shortfall in March, mainly on increased dividend payments to foreign investors and a fall in the trade surplus. Dividends paid by SKorean companies to overseas investors rose by more than one-third last year. Companies with fiscal years ending in Dec paid a total of KW5.08 tril ($5.5 bil) in year-end dividends to offshore shareholders, up 35% on year. Kookmin Bank paid KW1.02 tril and KEB, under the control of Lone Star Funds, paid out KW496.1 bil.

The combined net assets under variable life insurance policies handled by 22 insurers stands at KW20.37 tril, more than doubled since breaking the KW10 tril mark in Jan 2006. Samsung Life Insurance was managing the most assets with KW5.47 tril, followed by Kyobo Life Insurance with KW3.18 tril, Korea Life Insurance KW3.17 tril, MetLife Korea KW2 tril and ING Life Insurance Korea KW1.45 tril. Experts say variable life net assets will continue to grow rapidly.
Goldman Sachs Asset Management is to acquire Macquarie-IMM Investment Management, who manages roughly KW10 tril ($10.84 bil) in assets. As of the end 2006, GSAM managed $627.7 bil in assets.
Domestic institutional investors, even the conservative public pension funds, are serious to put their money overseas as a means for diversification and profit maximization. The National Pension Service is said to have put aside nearly KW5 tril ($5.40 bil) for investments into overseas securities, private equity funds and real estate properties and projects. The NPS has reportedly signed an agreement with Lazard and AIG Global Investment Group for managing their assets, with the capital commitment planned for the second half of this year.
 
China, Japan, SKorea and the 10-member Association of Southeast Asian Nations agreed to pool the region's vast foreign currency reserves to weather possible future financial crises like the one that they bitterly experienced a decade ago. They are looking for ways to more effectively manage their holdings of foreign currencies. The region, riding an economic boom, has currently held some $3.1 tril in reserves, about 65% of the world's total.
 
Moody's Investors Service raised the foreign-currency debt ratings of Korea Development Bank and 9 other Korean financial services firms. KDB's rating for senior obligation was raised by 3 levels to "Aa3," from "A3," the highest among Korean banks and 3 levels higher than Korea's sovereign rating. Moody's also raised the ratings for Industrial Bank of Korea, Kookmin Bank, Shinhan Bank, Woori Bank and Hana Bank by 2 levels to "A1", Korea Exchange Bank's rating 3 levels to "A2" while Pusan Bank's was lifted by 3 levels to "A3".

Korea's gasoline prices rose to a new historic high, showing a continuous rise for about past 4 months. Gasoline prices will likely continue its rising rally in the coming months, as the government plans to raise gasoline taxes in July. The prices of unleaded fuel averaged KW1,541.78 ($1.66) per liter, getting closer to the nation's highest level of KW1,548.01 per liter in the third week of Aug 2006.

After 2 years of talks, a group led by Korea National Oil Corp has won drilling rights for 2 oil blocks in Yemen estimated to hold 750 million barrels of reserves. KNOC, the state-run oil explorer, will sign a production sharing agreement for Block 4 in central Yemen and Block 39 in nation's southeast.
KOGAS signed MOU with Oman to establish joint venture company to develop LNG trading, and construction and management of LNG storage facilities. They agree to make capital of $10 mil, with 50-50 shares.
KNOC led Korean consortium and Rosneft, Russian state-controlled oil major, have signed a MOU in Sept 2004 for joint development of the Seat of Okhotsk's West Kamchatka Shelf, Russia and executed exploration works. They have estimated the volume of coal reserves there to surpass 10 billion barrels which can cover Korean consumption of over 11 years. Rosneft and the Korean consortium are holding 60% and 40% of stake. The location of West Kamchatka is geographically advantageous for the Korean consortium to execute business. They have planned to commence the drilling process in 2008 upon final confirmation of the coal reserve via 3 dimensional electric wave exploration in this year
GS Caltex signed a Head of Agreement with ChevronAustraliaPty and Chevron International Gas to import 250,000 tons of LNG each from 2 companies every year for 20 years. GS Caltex consider this as a visible achievement for its ambitious plan to bring LNG directly. It will keep seeking to diversify the supply source.

 CHAEBOL

Korea's top 10 conglomerates saw their profits plunge in the first quarter of 2007 due to KWon's gains and falling prices of their products in the global market. Samsung Electronics Co (SEC) recorded a 15.14% on year fall in net profit, amid stagnating prices of its main export items such as semiconductors. LG Group, the nation's No 2 chaebol, was hit hard by a global drop in the price of LCD panels. Its net profit plummeted 75.8% to KW145 bil ($149 mil). Hyundai Automotive Group (HMC) suffered a 2.36% drop in net profit as one of its key subsidiaries, Kia Motors, swung into the red, with a net loss of KW30.6 bil. The total net profit of top 72 listed companies fell 14.53% on year, while they recorded KW5.07 tril in gains.
The listed manufacturers' surplus funds ratio hiked up to 637.57% as of March 31 this year, indicating that the companies are too conservative with their investments. A study of 537 listed companies showed that their surplus reserve funds stood at KW335 tril ($360 bil) on their capital stock of about KW52 tril. On the other hand, their operating profit dropped to 6.6% last year from 7.8% in 2005 and 9.7% in 2004. The surplus funds ratios of the nation's 10 largest conglomerates were substantially higher than the average, at 741%. Samsung Group posted the highest at 1,349% with a combined surplus fund of KW63 tril over capital stock of KW4.69 tril. SK followed at a ratio of 1270%, Lotte 1,095%, HHI 856% and Hanjin Group 856%.
 
The Seoul High Court sentenced 2 Samsung Group executives to 3 years in prison and KW3 bil ($3.2 mil) in fines on charges of breach of trust for arranging the sale of convertible company bonds to Chairman Lee's son and daughters at below-market prices, assisting an illegal transfer of wealth among the family in 1996. Immediately after the ruling, the group claimed the verdict has many flaws, saying that it is confident of winning the case in the appeal court. The bond deal helped the chairman's son take control of Everland, a de facto holding company of Samsung Group. The court ruled the bond sale caused more than KW8.9 bil in company losses. The Seoul High Court's decision comes as an unsettling development to the heads of the nation's chaebols, as Samsung¡¯s method of under-priced CBs and BWs has been copied by some other chaebols.

SEC weakened its leadership in the DRAM chip market. SEC's market share in terms of revenue dropped to 25.5% from 29.1% in the previous quarter, while Hynix rose to 22.9% from 19.1%. SEC's current lead in the DRAM market is the narrowest since 2000.
SEC is increasing the capacity of its Slovak plant to help bolster its share in the fast-growing market for LCD TV. The 320 mil-euro ($438 mil) factory will produce 12 million LCD panels a year by 2012. SEC expects to boost its share of the LCD market in Europe by 2010 to 30% from 24% last year, expecting sale rise to $2 bil by 2010.
SEC, the world's largest maker of NAND flash memory and the fourth largest NOR producer, has expanded its share in the NOR flash market with revenue growth in the first quarter, while other major vendors suffered revenue drops. NOR flash memory is primarily used for fast data processing devices such as mobile phones. The company's sales went up 1.9% to $210 mil from $206 mil in the fourth quarter in 2006, while Intel suffered the worst revenue decline of 19.6% $427 mil, followed by STMicroelectronics with a 12.6% fall.
SEC will boost its R&D in India to further advance software development for digital media devices and next-generation information and communications technologies. Samsung India Software Center, its largest overseas R&D unit in Noida near New Delhi will raise the number of researchers to 1,000 by 2010 from the current 300. Samsung's total R&D spending for 2007 is expected to reach a record-high, allocating almost 10% of its 2007 sales target of KW63.6 tril ($68 bil), mostly on semiconductor, LCD, and handsets.
 
Samsung Life Insurance is aiming for KW60 tril ($62.7 bil) in yearly revenue and KW260 tril in total assets by 2015. The company, currently Korea's No 1 provider of life insurance, aims to be then the top 15 insurers in the world. Samsung Life became the first non-bank financial institution with KW100 tril in assets last year.
Samsung Engineering has received an order to construct a $950 mil worth petrochemical plant from Ma'aden, an enterprise run by the Saudi government. This project is the largest scaled order received by Samsung since its establishment. The plant will be constructed in to Jubail in Raz Al Zawr and produce 3,300 tons a day, world's largest daily production. Samsung Engineering will conduct the entire procedure in 43-month terms of work, completing by Dec 2010.
 
Hynix Semiconductor, the world's second-largest memory-chip maker, received the "industry's first validation" on its DDR3 memory products from the world's largest semiconductor manufacturer Intel. The newly-validated DDR3 memory chips run faster and consume less power compared to existing DRAM products. The DDR3 products can be used for a wide range of items including computers, servers and laptops. DDR3 expected to account for 25% of total DRAM shipments by the end of 2008 and will dominate the market by 2010.
 
Share holders of SK Corp approved the plans to split Asia's fourth-largest refiner into holding and operating companies to simplify the group's structure and enhance corporate governance. The reorganized companies will be called SK Holdings and SK Energy. SK Group, will be the second chaebol to form a holding company after LG did so in July 2004. The split takes effect July 1. SK Energy will focus on energy and chemicals, while SK Holdings will concentrate on business investments.
Kumho Asiana, the 9th largest chaebol, will turn Kumho Industrial and Kumho Petrochemical into holding companies. Kumho Industrial takes Daewoo Engineering and Construction and Asiana Airlines under its wing. Kumho Petro chemical would take charge of Kumho Tires and Kumho Life Insurance.
CJ Group is to turn CJ Home Shopping into a holding company with 5 affiliates, including CJ CableNet, Mple Online, DreamCity.

Korea Electric Power Corp (KEPCO), the supplier of almost all the power in Korea, made an initial agreement with China Datang Corp and the regional government to build and operate 2 coal-fired plants in Henan with capacity of 1 million kw each worth about $1.03 bil. The construction begins in 2010.
KEPCO was selected by the Nigerian government to restore a thermal power plant in Egbin for $27 mil. The power plant, with full capacity of 1,320 mw, is the biggest steam power plant in the Central, but its operations stopped as the result of an explosion.
 
POSCO, the world's fourth-largest steelmaker, began steel production at its FINEX plant, for the first time in the world, with an annual output of 1.5 million tons. POSCO was awarded the Gold Order of Industrial Service Merit for developing and commercializing the alternative steel production method. The FINEX plant whose construction began in Aug 2004 and cost KW1.06 tril ($1.14 bil), allows coal and iron fine ores to be directly used in smelting without undergoing preparation processes such as coking, allowing a reduction in steel production and facilities construction costs. The construction costs of the FINEX plant are around 20% cheaper than conventional steelworks. In addition, iron fine ores are more abundant and cheaper than larger ores used in blast furnaces.

Korea, the world's fifth-largest steelmaking nation, opened the nation's first smelter for molybdenum in Yeosu with an initial production capacity of 6,000 metric tons a year. The smelter will help SKorea reduce dependence on refined imports from China and Chile and tap rising demand from steel mills. The new smelter will initially meet 35% of domestic demand and save about KW130 bil ($140 mil) in imports. The plant will meet 70% of domestic demand when it doubles capacity.
 
4 LG Group affiliates, such as LGE, LG.Philips LCD, LG Innotek and LG Chem, are involved in producing LCD TV in Wroclaw, Poland. LGE will produce LCD TV sets ranging 32-55 inches, LG Chem provides display materials, LG Innotek invertors and power modules, and LG.Philips will produce LCD modules, expecting to produce 2.4 million LCD TV sets in 2007 and expand output to 10 million units per year by 2011. LG Group will invest a total of 807 mil euros ($1.1 bil) in the Poland cluster by 2011.
 
Doosan Infracore, the country's leading contruction equipment manufacturer, will spend KW180 bil ($194 mill) on R&D of international standard in 2007, with the plan to build a second R&D center in Changwon by July 2008.
Doosan Heavy Industries & Construction (DHIC) received a $1.2 bil order from Tata Power Co in India to build a thermal power plant, consisting of 5 x 800 mw coal-based power units, in Mundra, India, for the completion by April 30, 2012.
DHIC received a Letter of acceptance from Dubai authority to construct $500 mil worth oil fired power plant with the capacity of 670 mw for the completion by Dec 2010 in Jebel Ali.
 
State prosecutors charged 9 former and incumbent employees of Kia Motors for leaking core manufacturing technologies to China. 5 of them were arrested and indicted in the first industrial espionage case involving the automotive industry in Korea.
State prosecutors indicted 4 Koreans on charges of attempting to leak wireless broadband internet technology to USA. 3 former employees and an incumbent researcher of POSDATA, a computer services unit of POSCO, systemically schemed to hand over key WiBro technical data to a US telecom firm.
 
Hyundai Steel, Korea's second-largest steel maker, has signed a long-term purchase deal for iron ore Companhia Vale do Rio Doce of Brazil. The company will buy over 4 million tons of iron ore per year during 2010-2020, for Hyundai's two new blast furnaces now being built in Dangjin, which will be completed in 2011 with an annual production capacity of 8 million tons.
HMC Group plans to spend KW968.2 bil ($1.04 bil) by the end of 2009 upgrading domestic assembly lines and developing new products. The group aims to develop new models to challenge Toyota Motor and to increase their overseas sales as they seek to become the world's fifth largest auto-making group by 2010. The group currently ranked sixth largest, having plants overseas in China, India, Turkey, USA and Slovakia.
 
All Nippon Airways and Asiana Airlines agreed to buy stakes in each other, cementing ties between Japan's and Korea's second-largest carriers. All Nippon will buy a 0.72% stake in Asiana for $12 mil, while Asiana will buy a 0.16% stake in All Nippon for the same amount. The cooperation may help them compete with Korean Air Lines and Japan Airlines on overseas routes.

MONETARY AND ECONOMIC INDICES

The Korea Composite Stock Price Index (KOSPI) broke 1,700 barrier, closing the month at 1700.91, being led by heavy industry shares. KOSPI started the month at 1553, kept renewing the record to surpass 1600 on May 11, for the first time in stock market history and finally reached 1700. The rally continued against Alan Greenspan¡¯s warning that Chinese stocks might undergo a "dramatic contraction" and the People's Bank of China¡¯s announcement that it will let its currency rise or fall 0.5% a day, up from 0.3%, and Chinese government¡¯s tight money policy, but thanks to abundant liquidity in the market and a global equity rally.
The exchange rate of KWon has kept comparatively stable in the box of 930- 922-931-929 against USDollar through out the month. The exchange rate of Japanese Yen once hit KW768.6 against 100 JYen, the lowest since Oct 1997, deteriorating competitveness of exporters. Government reiterated that KWon has no reason to rise and would take action to calm the unreasonable appreciation if necessary. The nation¡¯s foreign reserves surpassed $2,500 bil level to $2,507.4 bil as of end May, compared with $2,472.6 bil in April. The daily trading volume on the Korean forex market gained 16% in the first quarter on quarter to an average of $37.12 bil. The average interest on fixed deposits in banks posted 4.83% in April, up 0.11% from March. The yield on 3 years corporate bond kept firm from 5.41% at the beginning to 5.55% at the end. Consumer prices increased at a slower pace in May to 2.3% on-year, compared with a 2.5% advance in April. The jobless rate rose to 3.3% from 3.2% in March.

SHIPBUILDING AND SHIPPING

Shipbuilding stocks, whose recent gains have helped KOSPI index soar to new highs, will likely remain investors' darlings for a while,. The share price of HHI has more than doubled from its close on Jan 4 and made the company rank fifth in market capitalization with KW21.7 tril, riding their earning surprise. Total capitalization of the shares of shipbuilder in Korea surpassed KW50 tril, doubled from KW25 tril at the end of last year.
 
HHI has received orders for a total of 31 ships including very large container ships of 8,600 TEU in May. HHI showed a particular strength in container ships sales and managed to attract 44 orders this year. In over-8,000 TEU VLCS sector especially, 80 ships were held as backlogs, 45% of the world's market. The construction time for container vessels is about half that of LNG ships, yet they yield higher profitability due to the recent price rise. In the first 5 months, HHI and Hyundai Samho received a combined $8 bil in orders, achieving more than half of this year's target of $13.7 bil.
HMD sold 1.94% stake in HHI, lowering its holding to 7.98% from 9.92%. Soaring share price of HHI made MJ Chung, defacto owner of the group, the richest man in Korea with the capitalization of KW2.311 tril, increased 123% from the end 2006.
HHI secured orders in May from Hanjin Shipping for 5 x 8600 teu and 2 x 180K bulker, Seaspan Corp 8 x 8,500-teu, Hapag-Lloyd 8 x 8,750-teu, Offen 4 x 8400 teu container ship, Naftomar 2+2 x 22.5K LPG and Dong-A Tanker 2 x 180K bulker. Hyundai Samho received orders from Asian Owner for 5 x container and Liquimar Tankers 1 x 168K tanker. HMD was also busy to collect orders, from Deny Denizcilik for 5 x 47K chemical carriers and NITC 4 x 36.2K pc.
 
SHI had another successful month to win the orders from Peter Dohle for 4+4 X 12,562 teu, an European 6 x 8,500 teu, Orient Overseas Container Line 1 x 4500 teu containerships, Fratelli D'Amico 2 x 157K bc and Yasa Shipping 1 x 157.7K tanker.
DSME also had brilliant result in May to get Claus-Peter Offen for 4 x 8,400-teu, Norddeutsche Rederei 8 x 8600 teu, Norddeutsche Reederei H Schuldt 12 x 8400 teu, , Thien & Heienga 4 x 4400 teu container ship, Korea Line 2 x 171K bc, Liberty Maritime 2 x 6,000 ceu PCTCs and TMT 3 x 317K VLCC. DSME won an order to build the world's most expensive 300K VLCCs for $139 mil.
DSME has developed new cargo containment system named 'sLNGc (Sealed LNG Carrier)' for the first time in the world. The system prevents gas evaporation by raising the pressure in the holds, taking about 10 patent and having obtained class approval.
 
STX agreed with STX Pan Ocean to build 2 x 177K bulker, Formosa Plastic 2 x 74.2K tanker, Stellar Shipping 2 x 58K bulkers Dream-58 design, Union Marine Enterprises 2 x 58K bulker. STX Busan received order from MPC Munch Meyer for 6 x 13K chemical and STX PO 2 x 13K chemical carrier.
Hanjin Heavy Industries decided to spin off by Aug its shipbuilding and construction activities into a new publicly listed holding company to maximize the profit potential of its individual business. The holding company will continue to handle investments at the shipbuilding unit, plus 4 other business units. Hanjin received the order from NSC for 8 x 12,800 teu container ship, the largest one ever built in the world, and India's Adani Group 2 x 176K bulker.
 
Sungdong won from Cafiero Mattioli Group for 2 x 92K bc, Kyla Shipping 3 x 170K bc, Anemi Maritime 2 x 93K bc and Tsakos group 4 x 170.5K capesize bulkers. SPP got the order from Premuda 6 x 35K, Metrostar 8 x 35K bc, Apex Marine 6 x 35K bc, NS Lemos 7 x 59K supramax bulkers. SLS had Danneborg Rederei for 6+2 x 45K chem.
 
Hanjin Shipping has seen a poor 2006 turn into a disastrous first quarter this year as it slumped to a massive loss, due to a fall in freight rates and the strengthened KWon. The net deficit was KW46.5 bIl ($50.16m) compared with KW61.1 bil in the first quarter of 2006. Revenues went up 7% from KW1.43 tril to KRW 1.54 tril. Hanjin has ordered 2 x 180K bulker and 2 x 8600 teu, and 2 x 82K bulker to Tsuneishi.
 HMM posted a loss of KW8.96 bil ($9.7m) in first quarter against a net gain of KW137.7 bil a year earlier. The revenue dropped over 6% on year to KW1.13 tril. Shares in HMM were boosted after the company announced to buy back more than $100m worth of shares to defend itself from potential hostile M&A attempt.
STX Pan Ocean posted revenues of $1.01 bil against $647.87 mil a year ago, while net profit jumped from $25.95m to $60.12m, bearing the substantial loss on forward freight agreements of $27m, as freight rates and volumes were up. STX Pan Ocean ordered 3+1 x handy size bulker to Taizhou Maple Leaf shipyard in China.
Korea Line decided to invest KW630 bil for the new building of 4 x capsize and 6 x handy size bulkers, and 1 x second hand crude tanker. KLC owns 28 ships in its fleet including 6 x LNGs and 13 units under construction. Including new venture, KLC will expand the fleet to 52 ships