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  Korea Report - September 2007
  Author : Hwang & Co     Date : 07-10-17 09:00     Hit : 41773    
Topics.
-President Roh and GNP are head on collision ahead of presidential election in Dec.
-Dispute on the bone in imported US beef disrupts the FTA between Korea-USA.
-Government is to plug a huge deficit of pension funds.
-Nuclear talks on disabling NK¡¯s nuclear activities are on the way.
-Government warned its action on KWon drive.
-Price of crude oil kept renewing the record.
-Large M&As face growing uncertainty.
-Chairman of Hyundai Motor and Hanwha Group were given suspended jail term in appeal courts.
-KWon kept strengthened with no halt.
-A dim crystal ball said;
-Each of Korean Big 3 may break $20 bil barrier in NB order this year.
-HHI decided to build block fabrication yard inside Korea.
-Hyundai Samho increased its stake in POSCO.
-SHI established tetra block fabrication system in China.
-Hanjin Heavy held first keel laying ceremony in Subic Bay.

GOVERNMENT AND SOCIETY

President Roh Moo-hyun and Grand National Party presidential candidate Lee Myung-bak are head on a collision course, ahead of the December presidential election. Cheong Wa Dae filed a lawsuit against GNP presidential candidate Lee and 3 of his aides, as they defamed the presidential secratariat by making false accusations that it mobilized government agencies to undermine the front-runner's presidential bid. It was the first time that a presidential secretariat has ever taken legal action against an opposition presidential candidate.
Even the pro-government United New Democratic Party commented that it is not appropriate for the presidential office to sue the presidential contender currently in the lead, regardless of what is right or wrong. The liberal party is concerned that the move by President Roh could hurt the already-sagging popularity of the liberal camp. Roh seems trying to avert his lame-duck status by attacking the GNP during his last months in office, giving a boost to pro-Roh presidential contestants. The GNP argues that the litigation is a political gambit to divert public attention from the latest bribery scandals allegedly involving presidential aides.
 
USA launched an interagency website, TradeAgreements.gov, jointly run by the Departments of Agriculture, Commerce, State, Treasury and the USTR, to campaign for public and congressional support for its pending free trade agreements with Korea and 3 other nations, such as Peru, Colombia and Panama. The Korean government submitted the FTA to its National Assembly.
Trade between USA and SKorea would increase by $18 bil a year, or 23%, if a pending FTA between 2 nations takes effect, a US government study reported. It analized that USA would increase their exports to SKorea by $10.9 bil, led by increases in dairy, pork, chemicals and machinery, and US imports would grow by $6.9 bil.
The government has revoked the trade permit of a US meat processing plant for shipping banned beef ribs to Korea. The decision comes after Seoul gave advanced warning against future violations of the current import rules on Sept 24. Under an agreement reached in Jan 2006, Korea would permit imports of American boneless beef from cows under 30 months old. Private US meat packaging facilities, however, have shipped banned ribs and backbones causing Seoul to temporarily halt import inspections several times in the past few months. It was the second time that the government has revoked a trade permit given to a US meat processing plant. The import of US beef was resumed in April this year following a 41-month ban on beef after a case of Mad Cow disease was discovered in the USA in 2003. Prior to the ban, the country's annual US beef imports were recorded at 200,000 tons.
 
SKorea and the European Union met for the third round of FTA talks in Brussels during Sept 17-21. Having sealed a FTA with USA in April, SKorea launched similar talks with the EU a month later, but both sides are far from reaching agreement to eliminate tariff and non-tariff barriers by the end of this year. The EU has offered to eliminate or phase out all its import tariffs on SKorean goods within 7 years, and remove tariffs on 80% of the goods within 3 years after a deal comes into force. Seoul says it would remove all tariffs on industrial goods within 3 years with some exceptions, and eliminate tariffs on roughly 68% of EU goods as measured in value in 3 years, improving from 63% in a previous offer.
Korea seeks a FTA with Latin America's Mercosur economic group, which was formed in 1991 as a regional economic bloc involving Argentina, Brazil, Paraguay, Uruguay and Venezuela. Korea will begin further talks with the SAmerican trade organization based on the outcome of the Korea-Mercosur joint feasibility study.
 
Government established a concrete plan with the Energy Service Company, which will be devoted to facilitating the process of climate technology transfer and implementing the Kyoto Protocol. 3 Korean companies began the ESCO business in 1992, and the number has now exceeded 150. The Energy Ministry plans to increase government funding to KW147.4 bil this year and KW170 bil next year, providing more funds to small and medium-sized businesses that are part of ESCO, and which face more difficulty in securing capital. A carbon fund is designed to assist the reduction of greenhouse gas emission while promoting sustainable development for industries, helping them take more voluntary action in adopting energy-conserving policies.
Climate change is warming up Korean waters faster than in most of the rest of the world. The surface temperature of the waters around the Korean Peninsula rose about 0.93 degrees Celsius on average over the past 39 years. That is well above the global average increase of 0.5 degrees Celsius recorded for the past century.
SKorea, China and Japan officially launched a steering committee for joint research on dust and yellow sand storms in Asian region at a two-day meeting in Tokyo, Japan. Experts from international organizations also attended. They shared the view that dust and sandstorms are one of the most critical environmental issues in Northeast Asia, and confirmed the importance of the joint monitoring and early warning network in the region.
 
Seoul National University is to establish a holding company from next year to capitalize on the research accomplishments of its university professors. SNU will become the first school to create a holding company in Korea.
Korea's spending on public education ranked second amongst OECD member countries. About 97% of people aged 25-34 graduated from high schools compared to the OECD average of 77%, taking Korea to first place among the members. 7.2% of national GDP is spent on public education, while the OECD average remained at 5.7%. Koreans spend an average of $7,068 a year per household on public education when their child attends university.
The government unveiled a draft plan to establish an English-only region on Jeju island by 2013 with 12 new schools that will offer intensive English immersion programs with the budget of about KW780 bil ($831 mil). It will break ground in the latter half of 2008 for 7 elementary schools, 4 middle schools, one international school and an English education center to train teachers and conduct research.
The number of foreign nationals applying for the Korean language proficiency test more than doubled this year. More than 81,000 people from 23 different nations applied this year to take the Test of Proficiency in Korean. That represents a 260% rise from 34,029 last year. Beginning this year, the test is being conducted twice a year due to the rising demand since the exam was first introduced in 1997.

The government is to allow limited research activities involving somatic cells for therapeutic purposes in a bid to promote safer and more ethical cloning science. A revised law on bioethics will be put into force in Oct to encourage medical research aimed at developing cures for rare or incurable diseases. The new code would allow scientists to use only human eggs that failed in or are left over from external fertilization. The improved bioethics regulations also prevent researchers from abusing DNA tests, banning 14 tests whose effects and safety have yet to be scientifically determined.
 
The government will spend over KW2.2 tril ($2.4 bil) to plug deficits in pension funds for government employees and military personnel next year. The total budgetary spending planned for 2 major state pension plans is estimated at KW2.21 tril, up 17% from this year, resulted from the fast-growing deficit in the pension fund for government employees. The state deficit in the 47 year-old pension scheme soared to nearly KW1 tril this year, compared to KW60 bil in 2001. The lifetime benefits for government officials who have worked for 33 years are twice those for ordinary national pension subscribers. The Budget Ministry estimated the pension scheme would post a deficit of KW670 bil this year. The loss is expected to soar to KW18.1 tril by 2030 if no measures are taken to rein in the budgetary problem. The annual losses from Military Pensions, whose funds dried up in 1977,are also expected to rise to KW1.9 tril by 2030.
The number of workers earning more than KW80 mil ($86,000) a year rose to over 53,000 in 2005, 0.8% of total employees. The number of employees with an annual income of KW40-80 mil also grew to 261,000 during the same period. The income has been on the increase since 1999 as the Korean economy quickly recovered from the crisis. The corporate restructuring substantially widened the wage gap among employees. Urban households in the top 20% bracket earned nearly 5 times more than the bottom 20% in the second quarter.

NORTH KOREA AND NATIONAL DEFENSE

Washington's Christopher Hill and Pyongyang's Kim Kye-gwan wrapped up their two-day bilateral meeting in Geneva prior to formal 6 way talks, to agree that "NK will declare all of their nuclear programs and will disable their nuclear programs by the end of this year." They have discussed and agreed on practical measures to disable their existing nuclear facilities, while USA has agreed to implement political and economic incentives in return.
By the invitation of NK, the experts, from USA, Russia and China, visited NK to discuss with the NKorean officials the measures needed to shut down the Yongbyon nuclear site and to make a detailed plan for the disabling of Yongbyon, prior to the six-party talks in Beijing.
 
The six-party talks held in Beijing during Sept 27-30 with members delving into make-or-break negotiations on a detailed roadmap for NK to declare and disable its nuclear program. In return for NK taking a next step toward denuclearization, the other members have begun shipping 1 million tons of heavy fuel oil in batches. The incentives also include Washington removing Pyongyang from its list of states that sponsor terrorism, and terminating the application of the Trading with the Enemy Act and other sanctions against NK.
They failed to produce a joint statement for the next step of denuclearization on the final day of their meeting Sept 30, but China progressed to provide a draft for the approval of the members early Oct, with the goal of producing a document outlining the declaration and disablement steps by NK, and the sequence of corresponding incentives.
NK has so far shut down its main nuclear facilities at Yongbyon, as part of the first denuclearization phase, in return SKorea and China have delivered 50,000 tons of heavy fuel each. It is currently in the process of receiving an additional 900,000 tons of heavy fuel oil, in exchange for the second step. President Bush's administration has notified Congress of its intent to provide $25 mil for the third tranche shipment of 50,000 tons of heavy fuel oil to NK.

President Bush said that NK should not proliferate nuclear weapons if it wants the six-party denuclearization talks to succeed, refusing to comment on alleged nuclear cooperation between NK and Syria. Israel conducted air incursions into Syria earlier Sept to attack the facility of a nuclear installation, allegedly being equipped with material brought from NK. NK's Foreign Ministry denounced it as a "clumsy conspiracy."
President Bush made a speech at UN General Assembly in New York, saying NK, Syria, Belarus and Iran are the "brutal regimes" that oppresses its own people. The US State Department is expected to announce soon additional sanctions on NKorean entities connected to missile proliferation.

President Bush told the nation that he planned to reduce the American troop presence in Iraq to 130,000-135,000 troops down from about 168,000 by next summer on continued progress.
SKorea faces a tough choice over the future of its 1,200 troops in Iraq. As the deadline to finalize a withdrawal plan nears, the nation is caught between growing domestic calls for a pullout, and the need to keep in sync with USA. Korea has maintained the Zaytun Division in the northern Iraqi city of Irbil from 2004, at the request of USA.

ECONOMY AND POLICY

The government announced that its budget plan for next year requires public spending to rise by 7.9% to KW257.3 tril ($277.4 bil), up KW18.9 tril from this year, assuming that the national debt will be KW313.3 tril, up from this year's projected debt of KW300.7 tril. Total revenue is estimated to reach KW274.2 tril, up 9.4% on year. The Budget Ministry estimates that next year's national debt will be 32.3% of the GDP. The ministry expects the Korean economy to grow 4.6% this year, and 5.0% next year. IMF predicted Korean economy would grow 4.8% in 2007 and 2008, quicker than a previous estimate for 4.4%.
 
Vice Minister of Finance reiterated Korean government's position that the US subprime crisis will have a limited effect on local financial institutions and added that the Korean government's economic plans and the country's large foreign currency reserves will reduce the chances of the effects of the situation spreading to Korea.
Korean authorities announced its determined action on the local currency whenever "excessive herd mentality" drives KWon higher. BOK said on Sept 11 it will stop currency swaps linked to its foreign-currency loans to local lenders, extending its policy of curbing KWon appreciation.
The Korea Development Bank arranged the issue of $50-mil floating rate notes for a European subsidiary of SK Shipping in Korean markets. It is the first time the overseas unit of a local company has raised funds in domestic capital markets through the issue of Kimchi bonds, foreign currency-denominated bonds issued in Korean markets. Kimchi bonds became a new alternative to local companies' funding, while absorbing part of the abundant foreign currency liquidity in domestic markets.

Korea recorded trade surplus of $2.49 bil in Sept, marking 54 consecutive surplus. Export posted $29.55 bil down 0.4%, and import $27.06 bil down 2.1% on year. Trade volume was decreased due to longer Chusuk holidays.
Korea's current account surplus sank to $610.3 mil in Aug from a revised $1.6 bil surplus in July, as the service account deficit widened on increased overseas patent payments and foreign travels.
Korean exports of information technology goods reached a total of $10.8 bil in Sept, up 0.8% on year, having been bolstered by strong demand for mobile phones and flat panel products. Imports of IT goods stood at $5.2 bil, down 1.8% on year.
 
The country's agricultural trade deficit may hit record levels this year on soaring international grain prices. The country's agricultural exports rose by 9.5%, and imports by 25.3% during the first half of the year on year, resulting in a 29.1% increase in the agricultural trade deficit. Agricultural exports in the first half of 2007 totaled $1.1 bil, while imports amounted to more than $6.4 bil. If Korea records a similar agricultural trade balance in the second half, the country's trade deficit in the sector will break the $10 bil mark for the first time.

HSBC failed to hammer out an agreement with Lone Star to buy a controlling stake in Korea Exchange Bank within the self-imposed deadline and that the exclusive negotiation period has been extended by 2 weeks. The deal is contingent on whether or not HSBC wins approval from Korea's Financial Supervisory Commission by April 30, 2008. But the FSC appears firm in its stance that it will wait until the court rules on the legality of Lone Star's acquisition of KEB in 2003. It may take 3 years or more before the case is settled.
It may prompt Hana Financial Group, Nonghyup and Kookmin Bank to be more aggressive in their pursuit of the KEB stake. It was also reported that a previous KEB suitor, DBS of Singapore, may re-enter the bid to buy a stake in KEB.

Good Morning Shinhan Securities has worked out a strategic partnership with Malaysia's Kenanga Investment Bank Berhad, the fourth-largest stock trader in Malaysia and the first local institution to be permitted to offer investment banking service, providing it with an opportunity to step into the Muslim financial market. Good Morning Shinhan Securities currently has partnerships in 10 countries including USA, the United Kingdom, Australia, China and Indonesia.
Woori F&I, a non-performing loan restructuring unit of Woori Financial Holdings, bought bad loans worth $3.7 mil in Vietnam, in partnership with Vietnam's state-run asset manager and a US private equity group. Woori, which in June purchased $20 mil wroth of Chinese bad loans, is the first Korean firm to enter the Vietnamese NPL market.

Since more foreigners investing in Korean stocks, domestic banks' service commissions paid by foreigners will soon reach KW2 tril ($2.1 bil), up 36.9% on year. Their commission revenue soared over 120% to $401 mil in July alone when the number of foreigners' equity transactions hit a record high. The BOK said that financial institutions are expected to earn up to $3.5 bil in foreign financial service commissions by the end of this year, up from $2.6 bil last year.
 
The price of Dubai oil, the benchmark crude oil for Korea's imports, kept renewing the record high through the month. It started the month at $68.57 per barrel, easily piercing $70 and reached $75.58 at the end. All the circumstances are encouraging the hike. A hurricane hit several US refineries in Gulf of Mexico, increasing worries over the supply and sharp down on US stock level of oil, etc.
OPEC warned that the world will continue to suffer from a shortage of oil refining facilities for several years. Goldman Sachs raised its year-end WTI oil-price forecast to $85 a barrel from its earlier prediction of $72 and cited a "high risk" of a jump above $90-95 because supplies won't be enough to meet an increase of demand in fourth-quarter.
 
CHAEBOL

Korea's major conglomerates continued to lose some of their weight in the local stock market, despite the bourse's record-breaking rally earlier this year. The top 10 Korean business groups, including Samsung and Hyundai-Kia Automotive Group, accounted for about 39.8% of the Korean stock market, down from 40% at the end of 2006 and more than 50% in 2004. The combined market capitalization of some 79 firms belonging to the conglomerates, as of Sept 14, rose to KW407.3 tril ($439.4 bil) from KW311.3 tril, owing to the stock market's bullish run.
Large merger and acquisition deals face growing uncertainty stemming in part from political influences and legal disputes. Hyundai Engineering & Construction is also caught up in a court battle, as the stakeholders filed complaints against Hyundai Group, the prospective contender, over accounting fraud. The sale of Hynix, the nation's second largest chipmaker, is also having trouble though the company is not faced with any legal controversies, because there are no local buyers with the billions of dollars to purchase such a large stake, while foreign bidders will face political opposition because the semiconductor industry is considered a source of the nation's technological and economic resurgence. Daewoo Shipbuilding & Marine Engineering may also suffer from a similar problem. Since the technologies of the world's third largest shipbuilder are legally categorized by the state as confidential, foreign investors are prohibited from bidding for the company. Furthermore, a lack of domestic bidders who can pay $6 bil for the company worries creditors.
 
3 SEC's mobile phones made it into the Guinness Book of World Records. The Ultra Edition 5.9, which is only 5.9 mm thick, has been named the world's thinnest phone, while the Ultra Edition 8.4 as the world's thinnest 3G phone, and 10-megapixel camera phone as the world's highest megapixel mobile phone. With the three new entries, SEC holds 4 Guinness world records in the mobile phone sector. The company's TV phone made its entry in 2001.
SEC has developed a 2-gigabit DRAM chip using 60-nanometer technology. The newly developed chip is the first of its kind in the industry and its data transfer speed has been improved 20%, compared to the previous model.
SEC¡¯s shipments of LCD panels for desktop and notebook monitors exceeded the 200-million mark, for the first time in the LCD industry. The revenues of the LCD production have been growing since they bottomed out in Feb, and the momentum is likely to continue. SEC has held the top spot among LCD makers since 2002 when it became the largest LCD maker by sales in the world.
Targeting fashion-savvy consumers with the latest luxury phone, SEC formed a strategic alliance with Italy's prominent designer Giorgio Armani. The company unveiled the Giorgio Armani-Samsung luxury phone SGH-P520 during Milan Women's Fashion Week at the Armani Teatro in Milan. The Armani phone will be released in the European market in Nov this year, and other markets in 2008. The price of the Armani phone is expected to be more than 650 euros ($920).
 
SK Telecom (SKT) has teamed up with SEC to promote WCDMA-based 3G service in Korea. They agreed to release 8 new WCDMA handsets in the domestic market by the end of the year and share advertisements featuring promotion models of both companies.
SKT has signed a cooperation agreement with T-Systems, a German broadcasting equipment provider, to accelerate its move toward overseas mobile broadcasting markets, developing mobile broadcasting technologies and advancing into overseas markets, including Europe and Asia.
Fitch Ratings raised credit rating of SK Energy from ¡®BBB-¡® to ¡®BBB¡¯, following Moodys¡¯ move.

LG Chem plans to raise its rechargeable battery output capacity by over 20% by the first half of next year to meet soaring demand for mobile electronic devices, increasing the monthly production to 35 million cells from the current 28.5 million.
GS Caltex completed the construction of a new oil upgrading facility about 2 months ahead of the schedule, aiming to quickly tap soaring fuel demand in Asia. KW1.5 trilon ($1.6 bil) heavy oil upgrading plant will transform 55,000 barrels of cheap Bunker-C oil into light oil of higher value from Oct.

Hynix Semiconductor, the world's second-largest semiconductor chipmaker, has developed the world's densest multi-chip package with 24 stacks of NAND flash memory. NAND-based MCP supports such high-end features as mega-pixel camera, video streaming and broadcasting reception. The new MCP, which can provide data storage of up to 48 gigabytes, can store 12,000 mp3 files or 25 DVD movies in a package as small as a nickel.
 
Hyundai Motor (HMC) chairman Chung Mong-koo, 69, was given a suspended three-year jail term by an appeals court for embezzlement of company funds to establish slush funds. The appellate court, however, ordered Chung to perform community service, including giving lectures to businessmen and writing articles in newspapers on transparent company management. It also ordered him to carry out his pledge to donate KW840 bil ($894.3 mil) to social charities as a gesture of regret.
The Fair Trade Commission ordered 5 Hyundai-Kia Automotive Group affiliates to pay KW63.1 bil ($67.1 mil) in fines for providing monetary support to other affiliates using illegal methods. The fined affiliates are HMC, Kia Motors, Hyundai Mobis, Glovis, and Hyundai Steel. FTC said that 5 firms have been directing a disproportionate share of their trade to 6 other affiliated companies including Rotem and Hyundai Card.
Kia Motors Europe has opened an office in Frankfurt, Germany. The building cost the company KW94.8 bil ($100.9 mil) and took nearly 2 years to complete. It will house Kia Motors's German and European headquarters, as well as the company's design center.
Beijing Hyundai Motor scaled down its annual sales target from 320,000 units to 260,000. It is first such move since the Chinese business was launched in 2002. The decision comes after HMC earlier reported that it is losing ground to foreign rivals in the market.
 
An appeals court suspended the prison term of Kim Seung-youn, chairman of Hanhwa Group, following his conviction regarding a revenge beating attack. Kim was sentenced in July to 18 months in prison. The appeals court suspended the sentence for 3 years. Judge ordered Kim to do 200 hours of community service, some of it at welfare facilities, to ensure that he "contributes to society by repenting and abandoning a sense of enormous privilege."
Hanhwa Group has agreed to take over a 17% stake in Korea Life Insurance, the country's No 2 life insurer, from Japan's Orix Corp for KW655 bil ($698 mil), becoming the largest shareholder of the insurance company.
 
POSCO has begun the construction of a new plant in Altamira on the eastern coast of Mexico. The plant will have an annual production of 400,000 tons for a continuous galvanizing line to produce zinc coated steel plates used in automobile production. The $250 mil-plant, scheduled for completion in Sept 2009, is POSCO¡¯s second facility in Mexico. The company's first Mexican facility, which began production in March this year, is a plate steel processing center located in the state of Puebla in central Mexico. POSCO aims to increase its share of the world's market for steel plates used in automobile production, and Mexico has one of Central and North America's fastest growing automotive industries.
 
The Fair Trade Commission has completed its investigation into Intel Corp, on suspicion it employed monopolistic business practices in its dealings with computer manufactures. The company has allegedly carried out illegal practice, including provision with computer makers with rebates, and taking its dominant position to prevent computer makers from using products from rival companies. Intel has also been investigated by competition regulators in USA, Japan and EU.
 
Daewoo International Corp signed a contract with an Uzbekistan oil explorer, the Institute of Geology and Prospecting for Oil and Gas deposits, to more effectively tap gas reserves in the central Asian country. Daewoo is currently seeking oil in Ustyurt, the northwestern area of Uzbekistan. A total of 10 exploration projects are being run by the company across the world, including in Myanmar, Vietnam and Russia.
 
Samsung Engineering won the order from Thailand National Oil Corp to construct 2 units of Gas Plant worth $1.1 bil with the daily capacity of handling 160 mil cu ft for the completion by March 2010.
HHI signed the contract with National Iranian Oil to construct oil upgrading facilities including Reactor and Regenerator for $54m.

MONETARY AND ECONOMIC INDICES

The benchmark Korea Composite Stock Price Index has recovered its energy in Sept from the deep slump in Aug. It started the month at 1881, dived to 1831, due to an unexpected drop in US employment and ahead of a scheduled expiration of stock options, then by the USFR¡¯s cut of its benchmark interest rate to 4.75%, and recovered to 1946 at the end of the month.
Foreign investors' share of the Seoul stock market has dropped to the 33% level, the lowest in 6 years, as US investors are leading the rush out of Korea. Foreign investors sold KW37.82 tril ($40.82 bil) and purchased KW28.27 tril, net-selling KW9.55 tril in Aug, bringing down the foreign-controlled market cap by 1% to 33.5% as of the end Aug, the lowest since Sept 2001. Foreigners¡¯ share was 35.5% at the end of June and 34.5% in July.

KWon kept strengthened with no halt, after USFR cut its benchmark interest rate to ease subprime mortgage concerns. The exchange rate of KWon against USDollar has gone down from 938 to 915 through the month. As of the end of Sept, the country's foreign exchange reserves amounted to $257.29 bil, up $1.99 bil from August.

BOK kept the benchmark interest rate unchanged at a six-year high of 5%. As interest rates on home-equity loans continue to move upward, approaching 8% per annum, driven by BOK's consecutive rate hikes in the past 2 months. The yield on the benchmark five-year government bond rose to 5.49%. The yield on 3 years corperate bonds climbed from 5.87 to 5.97%.
Growth in the money supply slowed in July. Aggregate liquidity totaled KW1,951.4 tril ($2 tril), up 0.1% on month and up 12.1% on year. The annual growth of the liquidity was 12.7% in June, the steepest rise since Feb 2003. A high level of liquidity prompted BOK to raise the overnight call rate in July and Aug to 5%.
Korea's jobless rate fell to 3.2%, a five-month low in Aug, from 3.4% in July, as service sectors hire more employees.
 
SHIPBUILDING AND SHIPPING

New building prices show no sign of softening in the near future. The strength of cape size bulkers leads the market, despite its somewhat overflowing order book currently near to 60% of existing fleet, with over 350 ships waiting for the delivery during 2009-2012. No one is surprising nowadays at the news a 175,000-dwt caper is fixed at $130,000 per day for 12-14 months and a readily available caper can snatch $150 mil. Such unjustifiable figures encourage all the players in the market rush into the market. The high rate fuelled not only the capers sector but also all other type of bulker tonnage including Kamsarmax and post panamax tonnage.
A bulker owner friend asked me to look into my crystal ball to see the way of coming development. There are 3 choices for the owners to live with; sell all the fleet in this fantastic price, or long term charter out of fleet at least for 5 years to take chance on the coming years after the termination of charter period, or continue the new building. My dim crystal ball shows very little. I raised the same question to my builder friends, who need even more desperately the guidance from my ball, and got the general consensus with no responsibility as such; sell the half of fleet right now, charter out remaining fleet for a certain period of time, and wait for the chance to pick up good candidates in the coming days with reserved cash. That may be the answer.

Korean Shipbuilders¡¯ Association predicted the annual average global demand of new building to reach 60 mil GT by 2020, while Korea¡¯s anticipated annual average delivery of tonnage during 2007-2010 is expected 21.9 mil GT.
The Chinese State Oceanic Administration claimed China¡¯s orders surged by 165% on year in the first half. Korea confirmed China¡¯s first-half orders stood at 49.9m DWT, against its own 42.8m DWT. The Community of European Shipyards' Associations also said Chinese yards won 38% of new orders in first quarter, beating SKorea's 33%. However, in CGT measure, Korea is in first place with 15.3m CGT in the first 6 months, beating China¡¯s 13.8m CGT.

Market watches Korea¡¯s Big 3 whether each of them could break $20 bil barrier in its new building order this year. They have kept raising annual sales target due to surging order. SHI recorded $16.4 bil, where its original target was $11 bil at the beginning of the year and raised once to $15 bil which was already broken. HHI posted $15.7 bil. DSME won the orders worth $15.2 bil, whose original target was $10 bil and revised to $17 bil.
 
HHI decided to build a steel block fabrication plants at Kunsan in the west coast of SKorea, spending KW300 bil ($324m), aiming the completion by May next year.
Hyundai Samho has increased its stake in POSCO to help the steel giant defend against a possible take-over. The transaction, worth $266.8 mil for 0.5% stake, increases Samho¡¯s holding in POSCO to 1.5%. Samho had paid $527m for a 1% stake in POSCO earlier. POSCO has also swapped stakes with other friendly investors, including Japan¡¯s Nippon Steel Corp.
HHI won the order from Seaspan 8 x 13,100-teu container ships, Prisco 2 x 166K tanker, DongA Tanker for 1 x 179.6K bulker and GlobalSantaFe 1 x ultra-deepwater drillship,.
Hyundai Samho got the order from TMT for 1 x 7900 PCTC.
HMD signed the contract with Hartmann Reederei to build 8 x 2,000 teu containerships, Rickmers 8 x 2000 teu, Another European 4 x car-carriers, TMT 2 x 52K PC, ST Shipping&Transport 2 x 46K MR PC + 3 x 37.5K PC and D'Alesio Group 2 x 37K chemical/PC.
 
SHI has developed a new shipbuilding system, called the "tetra-block" method, that allows the company to assemble a vessel with just 2 large blocks in the dry dock. SHI established new facility in China's Shandong province to makes the jumbo blocks which will be towed on the barge. SHI received orders from George Economou for 2 x fifth-generation 10,000 ft drillships, Peter Doehle 4+4 x 12562 teu, Zim Integrated 8+1 x 13000 teu, Claus Peter Offen 5 x 12562 teu and Geden Lines 3 x 115K tanker. SHI made a contract worth KW418.4 bil with Norwegian company to build an oil production platform for the whole payment in KWon.
 
DSME secured orders from a firm on the Oceania continent for a drillship and Knutsen OAS Shipping 1 x 160K ice-class-1A suezmax tanker.
STX got the order from Aegean Bulk for 4 x 81K bulker, Arcadia 4 x 81K bulker, Korfez 1 x 81K bulker, and Interglobal Marine Agencies and Diler Holding 2 each x 81K post-panamax bulkers.
Hanjin Heavy Industry held the first keel laying ceremony in its Subic yard on Sept 1. The keel was for 4300 teu container ship for Dioryx.
Samho in Tongyoung got the orders from Evangelos Marinakis for 12 x 25K IMO-II/III PC and Arne Blystad 8 x 25K IMO-II/III PC.
 
The US Federal Maritime Commission reached an agreement with HMM to shell out $680,000 in lieu of civil penalties, for the alleged violation against the US Shipping Act, by paying less than the rates in its service contracts.
STX Pan Ocean successfully listed its stocks in Korean bourse during Sept 13-14, becoming the first Korean company to list its major stocks in both stock exchanges in Singapore and Seoul. STX PO plans to take delivery of 36 ships, including LNG, Tanker, bulker, PCTC and container by 2010, to expand its fleet to 100 ships.
Chang Myung Shipping continues expanding its bulker fleet. The owner has ordered 1 x 176K capesize bulker at Daehan Shipbuilding at $95m for the delivery of 9/2008, 4 x 33K bulkers to Zhenghe Shipyard at $30m taking delivery from mid-2009 and 4 x 33K log carriers from Orient Shipyard at $35m, 2009-2010. Chang Myung has already placed at Zhenghe 4 x 57K supramax bulkers in May at $36-37m, 2008-2009.