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  Korea Report - December 2006
  Author : Hwang & Co     Date : 07-01-08 12:56     Hit : 40567    
Topics.

-President Roh shook the society by attacking remarks on politicians and generals.
-Fifth round of FTA talks between Korea and USA hit the rocks.
-Government to reform pension plan for government workers.
-NK returned to the fifth round of six-party talks, but in vain.
-NK defectors predicted NK regime to disappear in 10 years.
-GDP grew 5% in 2006.
-Korean export surpass $300 bil.
-Authority to take a step to curb rapid surge of Kwon.
-Prosecutors declare the sale of KEB to Lone Star illegal.
-President Roh rejected to pardon convicted business leader.
-Samsung Group faces corporate governance trap.
-Kumho Asiana acquired Daewoo Engineering.
-POSCO expanded its global activities.
-Korean ship builders secured more than $50 bil orders in 2006 and maintained triple crown.
-HHI signed the world¡¯s largest offshore deal.
-DSME form a shipping joint venture with NNPC.
-Hanjin Shipping established strategic ties with Kawasaki Line, following the same with Korea Line

GOVERNMENT AND SOCIETY

Ruling Uri Party legislators, supporting a split from President Roh Moo-hyun, started a campaign to dismantle the party and to create a committee to form a new party, in the hope to rejuvenate Uri's image and increase its chances at next year's presidential election. Former and incumbent leaders of the Uri Party agreed to create a new political entity in 2007, deserting President Roh and his party, which is besieged by rock-bottom single digit approval ratings.

President Roh, plagued by nagging worries of becoming a lame duck and haunted by record-low approval ratings, shook political circles by launching an attack on presidential hopefuls from both his own party and the opposition, and former defense ministers and chiefs of the general staff. In a televised speech, President Roh said appointing Goh as prime minister was a "big mistake." Roh also took a shot at the former and incumbent Uri Party leaders Chung Dong-young and Kim Geun-tae, saying he encouraged his competitors to seek high positions within the party "for noble causes" but nobody appreciated the move. Roh described the former military leaders as irresponsible and shameful for their series of collective actions against SKorea's efforts to take over wartime operational control of its forces from USA, accusing them of being ashamed of themselves with regard to their argument that the Korean military still lacks sufficient to exercise independent operational control of its own forces.
Goh, who previously served as first PM in the Roh Cabinet, made a counter attack, saying "It is completely self-contradictory for the president to say his appointment was a mistake," and "The president should remember he has only himself and his inadequate policies to blame for the current crisis the government faces."
A group of 73 former military leaders, including 12 ex-defense ministers, demanded President Roh apologize for what they describe as disparaging remarks regarding the compulsory military service system, and their earlier protests in relation to the government's plan to exercise independent wartime operational control of Korea's armed forces, as the remarks defamed the citizens, the armed forces, the Constitution and the sanctity of military duty.

Korea and USA held their 5 days fifth round of free trade negotiations during Dec 4-8 in the State of Montana, USA. For Korean, the FTA with the world's largest economy would mean an opportunity to advance Korean industries and its economy, while for USA, a trade accord with Asia's third-largest economy would become its largest since North American FTA effected in 1994. But from the beginning, they hit a deadlock in the most sensitive areas, raising doubts about a deadline in March 2007 to conclude the negotiations, to meet the July expiration of the Bush administration's fast-track trade authority.
In the trade remedy area, Korea asked USA to revise 5 antidumping rules that have been used against Korean imports, cutting drastically from it's original demands covering 15 rules. Korea, which is now grouped with China, said it should be evaluated separately from China. When USA refused to accept Korea's concessions on trade remedy issues, Seoul suspended talks in autos and pharmaceuticals, Washington's most sensitive areas in the negotiations. Seoul once hinted to compromise with Washington by giving wider access to Korea's auto and pharmaceutical markets if US trade rules are changed. The Korean government claims current US antidumping rules discriminate against Korean imports, saying the companies particularly in the high-tech industry, such as Samsung Electronics and Hynix Semiconductor, have been unfairly punished. Seoul has focused on trade remedies in the current round, as US negotiators face the time pressure until the end of Dec to submit a report to Congress on the subject. According to a May report by US Congress, 5 countervailing duties and 18 antidumping orders were imposed on Korean exports, and the affected goods were mostly semi conductors, steel and telecommunications equipment. USA used safe-guards to curb steel imports from Korea and other countries in 2002, a move ruled illegal by global trade arbiters by OECD.

Seoul rejected American beef imports on Dec 6, the third decline since Seoul lifted an import ban in Sept, because Korean quarantine officials had found bone chips in some slabs of meat. USA argues that such conditions go beyond international rules, which declare some bone in beef cuts to be safe. Both sides agreed in Jan that imports of US beef would be boneless and from cattle younger than 30 months of age. USA wants Korea, its third-largest beef export market before Dec 2003, to ease the restrictions and fully open up the market. News that Korean quarantine officials found, on Dec 1, traces of toxic dioxin in 10.2 tons of beef shipped in from USA, further rattled the trade dispute. Washington on Dec 12 proposed holding a consultation meeting on the beef dispute stemming from import standards, which the USA has criticized as having been "invented." The talks will come on the heels of the sixth round of FTA talks scheduled to begin in Korea on Jan 15. Although Seoul has stressed that beef import safety issues are not within the purview of FTA negotiations, Washington has been aggressively lobbying for Korea to ease their import restrictions.
 
The government has decided to reform the pension plan for government workers in line with the recent reform plan for the national pension system, in order to tackle its mounting deficit. The lifetime benefits for government officials who have worked for 33 years are amounting to 51.5% of their average income, compared with 25-50% for subscribers to the national pension plan. The Budget Ministry estimates the pension scheme will post a deficit of KW670 bil in 2006, expecting to soar to KW18.1 tril in 2030, if no measures are taken. Nearly KW850 bil was sunk into the fund to plug the deficit in 2006 alone. Other major state-run pension funds for private school teachers and soldiers also face similar reform pressures, as the Private School Teachers Pension Fund is expected to start running out of money from 2018 and record a deficit of about KW5.7 tril in 2030. The Military Pension, which already dried up in 1977, is expected to record a KW926 bil deficit in 2006 and will rise to KW1.9 tril in 2030.
 
The Constitutional Court opened its first public debate on controversial private school regulations which were passed by the ruling Uri Party on Dec 9 in 2005 amid fierce political debate. The bill stipulates filling one-fourth of the seats on the boards of private school foundations with outside figures recommended by the school operation committees, which will consist of teachers, parents, alumni and prominent figures in the region, citing corrupt practices committed by private school founders and their family members. A school foundation and its founder filed separate petitions with the court, claiming that the bill is an attempt to publicize and socialize the private  foundations, which violates the constitution of self-governance and free market economy. But the government insists that 98% of operating costs at nationwide private junior high and high schools are covered by the government's grant money and students' tuition fees, which indicates that the private schools are not private any more. About 40 leaders of the Christian Council of Korea and Catholic education foundations threatened to shut down their mission schools unless the National Assembly rewrite the controversial private school law.
 
The government confirmed the latest case of avian influenza at a poultry farm in Gimje in southwestern Korea, having killed over a thousand quail. It was the third of its kind since the first case was discovered at a farm in Iksan, 18 kilometers north of Gimje weeks ago. The second case was also discovered in Iksan on Nov 25 in 2006. The government slaughtered 764,000 poultry around Iksan after the outbreak in Nov. There have been no human casualties from bird flu in Korea. A team of 307 quarantine officials have been dispatched to conduct continuous monitoring. 3 affected farms lie on a path for migratory birds that head south from Russia, Mongolia and Kazakhstan.

The nation's per-capita GDP is set to top the $20,000 mark in 2007. The country's GDP grew around 5% in 2006 and likely continue to expand at a rate of 4.4% in 2007. Despite the steady growth pace, per-capita GDP is likely to reach $20,000 in 2007 on the back of the strong KWon. Korea's GDP per capita stood at $16,291 at the end of 2005, placing it 29th in the world. The nation's nominal GDP totaled KW806.6 tril ($885 bil), the 12th largest in the world. Korea's per-capita figures rebounded to the $10,000 level in 2000 after plummeting to $7,355 amid the 1997-8 Asian financial crisis. They have since risen steadily from $11,499 in 2002 and $14,193 in 2002 to $16,291 in 2005, and expected to be around $18,300 in 2006.

The Korean population in the 30-49 age is predicted to start declining, while people aged 60 or more are to top 7 mil in 2008, accounting for 15% of the total population in 2010. The nation's population stands at 48.29 mil at the end of 2006, but it is expected to increase year by year to reach a peak of 49.34 mil in 2018, and then start declining. Korea's core productive population, referring to people aged 24-53, which amounts to 23.7 mil in 2006, will increase to 24.2 mil in 2009 and start falling thereafter. The average life expectancy of Koreans was 78.6 years in 2005. The average life expectancy was 75.1 years for male and women¡¯s 81.9 years, compared with the average 75.4 and 81.1 years for the 30-member OECD, respectably.

NORTH KOREA AND NATIONAL DEFENSE

NK returned to the fifth round of six-party talks during on Dec 18-22 with more bargaining power of having tested a nuclear device in Oct, after a 13-month break. NK remained steadfast in its demand for a lifting of financial sanctions, while USA refused to link the issue with talks on the denuclearization. Since the six-party talks first convened in Oct 2003, the members had officially gathered in Beijing a total of 7 times, but have so far seen no tangible developments in dismantling the North's nuclear weapons program. Pessimistic observers have cast doubt over the possibility of a resumption in the talks.
From the beginning, NK laid out a list of demands in return for giving up its nuclear programs. NK demanded the lifting of sanctions before starting negotiations. The North insisted to provide a light-water reactor and to supply alternative energy until the reactor is completely built, warning to take further steps to reinforce its nuclear power capability if sanctions continue or intensify. According to some estimates, NK possibly has between 8-10 nuclear weapons produced with reprocessed plutonium from the five-megawatt facility in Yongbyon.
USA reportedly proposed a four-stage implementation plan to NK in return for corresponding incentives. If NK agrees to freeze its plutonium-producing Yongbyon reactor as a first step, Washington would provide a security guarantee, most likely in writing. If NK allows IAEA inspections of its nuclear facilities as a second step, it would be rewarded with food and economic aid. The third and fourth stages would involve NK dismantling all its nuclear programs and permitting permanent inspections and monitoring.
A separate discussion continued on the sidelines over Washington's investigations into Macau-based Banco Delta Asia, which is suspected of circulating counterfeit USDollars made by NK. NK views Washington's financial embargo against Banco Delta Asia as the key example of US hostile policy. In a show of willingness to talk with the North, Washington's finance officials flew in with the nuclear negotiators and sat with their NKorean counterparts for 2 days to brief them on their investigation. The follow-up meeting could take place in Jan in Washington. USA has been trying to separate the BDA issue from the main nuclear talks.
A lot has happened but very little has been done in 2006 to resolve NKorean nuclear crisis. 2 Koreas went ahead with their scheduled economic talks in June, but failed to achieve any tangible development. NK test-fired 7 missiles on July 5. UN responded with Resolution 1695, calling upon member states to tighten their existing sanctions against the North. Ignoring criticism from USA and its allies, Seoul went ahead with the slated ministerial talks with the North a few days later, but the talks were closed earlier than scheduled with both delegations returning empty handed. SKorea's efforts to maintain relations with the North received a decisive slap in the face on Oct 9 with the detonation of a nuclear device. The test dealt a serious blow not only to Seoul but also to the Bush administration, facing crucial loss in mid-term elections in Nov. Very soon after the test, UN passed Resolution 1718, obligating all member states to take measures against the North, to prevent the proliferation of materials, finances and technology related to weapons of mass destruction. In Nov, NKorean envoys met with chief US nuclear negotiator in Beijing and agreed to return to the six-party talks. The six-party talks ended without any progress just before the Christmas holiday.

"The lesson of history is clear - getting a country to give up the nuclear weapons it has produced is exceedingly difficult, and will only occur when there is a change of regime," writes Ivo Daalder, a senior fellow in Foreign Policy Studies at the Brookings Institution.
 
Differences over costs and the timetable for relocating US military bases in Korea have emerged as a new source of contention between Korea and USA. Korean officials said that US base relocation is likely to be postponed until 2013 because construction of an alternative facility has been delayed due to protests by residents and anti-American activists. In 2004 Seoul and Washington agreed to move facilities and troops from the Yongsan Garrison and 2nd Infantry Division near the inter-Korean border to Pyeongtak by 2008. Officials revealed that USA had recently proposed Korea spend up to KW400 bil ($434 mil) to relocate the US digital command to a new installation, a sharp rise from earlier demand of KW9 bil. US Forces Korea claims that construction of the new installation should be completed during 2009-2010 for smooth US troop relocation, concerning that a further delay would result in possible strategic losses. Meanwhile, the Korean government aims to make the US troop relocation coincide with its regaining of wartime operational control from the US military, aiming to assure security of the peninsula through an extended US troop presence near the inter-Korean border.
 
The National Assembly approved a motion to send 350 Korean troops to Lebanon to participate in the UN-led peacekeeping operations, contributing a battalion-sized contingent to French-led peacekeeping operations in the region at the request of UN. The troops are to comprise special troops, medics, transportation and administrative clerks. The one-year peacekeeping force is mandated to supervise the cease-fire between Lebanon and Israel and to set up a buffer zone between them. They are also assigned to conduct humanitarian relief operations in the war-torn region.
 
The Korea Institute for National Unification surveyed 314 NKorean defectors to show that 71% of them believe Kim Jong-il regime will not last for another 10 years. As for the reasons the current regime is able to maintain control over the North, 27.9% cited the blockade of information from the outside world, 26% strong social control, 22.4% strengthening education of the communist system, and an intensification of military-first politics in 15.9%.
 
NK, desperate for foreign currency under US-imposed sanctions, has reported to start to sell its gold reserves on international markets. NK has earned $28 mil in foreign cash by exporting gold to Thailand, which had not imported gold from Pyongyang for the previous 5 years. NK was estimated to have between 1,000-2,000 tons of gold reserves.

ECONOMY AND POLICY
 
Strong overseas demand amid slackened domestic consumption has helped bolster the government¡¯s 5% GDP growth forecast for 2006. The government expects Korean economy could grow 4.6% in 2007 and the Korea Development Institute marginally raised its projection by 0.1% to 4.4%, on the back of stable oil prices and easing nuclear tensions, lower than BOK's estimated potential growth rate of 4.7%.
National Assembly approved a Budget for 2007 at KW163.35 tril, through the painful delays amid the political debates.

The country's exports, 40% of the national economy, rose 13.8% in Dec on year, thanks to strong overseas demand for computer chips, cars and ships. Overseas shipments reached $29.2 bil, after reaching a total of $30.9 bil in Nov, maintaining double-digit growth, despite unfavorable conditions such as KWon's gains and high prices of oil and raw material. Imports climbed 13.8% to $27.5 bil, resulting in a trade surplus of $1.7 bil. On Dec 6, Korea became the 11th country to surpass the $300 bil mark in annual exports, rising 14.6% in 2006 on year. The milestone achievement came only 2 years after the country passed the $200 bil mark in 2004, It has been achieved in 42 years after hitting $100 mil in 1964.
Exports of Korean automobiles and auto parts in 2006 are poised to top $40 bil to a total of $43.3 bil up 13.9% on year, marking a new milestone for the domestic auto industry. It expected to reach total $48.5 bil in 2007.
Korea's current account surplus widened to a record $4.24 bil in Nov, compared with a $2.06 bil in Oct, due to robust exports. The accumulated current account surplus this year to Nov was tallied at $5.95 bil. The country's current account balance swung into the black in Sept, after posting a deficit in 2 previous months.
Korean companies¡¯ investment in overseas gas and oil reserves is expected to surpass $2 bil to $2.06 bil in 2007, up from 2006 and $950 mil in 2005.
 
The foreign currency authorities, who have refrained from intervening in the currency market recently, are to take steps to balance demand and supply of USDollars in the Korean currency market to help curb the rapid surge in Kwon¡¯s value, as they think KWon's current value does not reflect economic fundamentals and the local currency has risen excessively compared to other major currencies. KWon has gained around 10% against USDollar in 2006, compared with an 8% gain in the Singapore dollar and a 2.3% increase in JYen.
 
Prosecutors declared the 2003 sale of Korea Exchange Bank to Lone Star Funds to be illegal, accusing bank and government officials of colluding to lower the sale price. They plan to ask US government to extradite vice chairman of Lone Star Funds, and the firm's general counsel for questioning. Over the past 9 months, they have been conducting a investigation into the KEB sale, Lone Star's asset management unit for tax evasion and malfeasance, and a possible manipulation of KEB Card's stock prices.
Lone Star chairman John Grayken strongly denounced Korean prosecutors, calling their finding "the old broad conspiracy theory that never made any sense and still is not supported by any hard evidence." Lone Star has called off a $7.5 bil contract to transfer control of KEB to Kookmin Bank. The fund may push to sell its controlling stake in KEB to new bidders outside Korea or continue to hold shares in KEB for a while, collecting dividends or selling off the bank's assets. Lone Star is already seeking to draw hefty dividends out of KEB up to KW1.3 tril in dividends in 2007.
Since the prosecution has concluded Lone Star Funds' takeover in 2003 of KEB was illegal, the attention is focused on whether the US fund will be able to pocket a fat profit from its investment in KEB. The fund bought a combined 51% stake in KEB for KW1.4 tril. Under local laws, funds and nonbanking institutions are barred from owning more than 10% in a local bank unless it is in financial difficulty. If the court finds illegality on the part of Lone Star, it may be forced to dispose of KEB shares in excess of the 10% ceiling.
 
Korea continues to pay the price of having insufficient protection from foreign funds. While public prosecutors aggressively dig into allegations of illegality on Lone Star Funds, Carl Icahn, a US investor-led fund, reaped profits of about KW150 bil from its one-year investment in KT&G, the Korean monopoly tobacco company, after first giving the impression they were taking a long-term position aimed at improving the corporate value of the target company. There is no legal ground to punish foreign funds for taking profits. Instead, Korea could foster home-grown private equity funds to counter the foreign ones.
 
Foreign investors sold a net of KW11.8 tril worth of shares in 2006, mainly high tech and electronics shares. Goldman Sachs forecasted that the foreign equity ownership in KOSPI may drop to 30% in the long-term and said long-term investors like pension funds are critical to keeping the market liquidity stable.
Companies seeking to sell shares on the Korean stock exchange no longer have to freeze the holdings of their biggest shareholders. Korea Exchange Inc, which runs Asia's fifth-largest stock market, scrapped a regulation that barred any change in a major shareholder's holding for one year before an initial public offering, as the rule is excessively limiting companies' ability to raise capital in the domestic market.
 
CHAEBOL

President Roh has rejected the corporate sector's requests for special pardons of convicted business leaders at the year end, but an aide indicated the pardons may happen in coming Feb. Recently, the nation's top corporate lobbying groups submitted a petition to the president on behalf of up to 60 ex-economic leaders including former chairman Kim Woo-choong of Daewoo Group, Park Yong-sung of Doosan Group,  Chang Jin-ho of Jinro Group and Choi Won-suk of Dong Ah Group, who were convicted of corporate corruption, such as deceitful accounting practices and stock price manipulation. President Roh pledged to step up government efforts to help stabilize KWon exchange rates and improve the business environment, in a meeting with the chairmen of the country's top 4 corporations, Samsung, LG, SK and Hyundai Motor. But he said the government was not considering easing the current restriction on large businesses' investment in affiliates.
 
Samsung Group, the country¡¯s largest chaebol, faces some tough choices after the Parliament passed a controversial bill that chips away at the current ownership structure with which chairman Lee Kun-hee¡¯s family manages its empire. Samsung Group ties together an array of financial, manufacturing and other affiliates through a complex web of circular stockholding. From its majority stake in Samsung Everland, a de facto holding company and operator of the Korean version of Disneyland, the Lee family controls the country¡¯s largest insurer, Samsung Life Insurance, and through it, Samsung Electronics (SEC) and many others. The circular shareholding formula also enables chairman Lee to transfer power to his son, who is currently the largest shareholder of Everland. The revised financial industry restructuring law strikes at the core of this governance structure by capping the cross-shareholding of financial and nonfinancial affiliates at 5%. Once effective, it eliminates the voting rights on shares that exceed 5% limit and forces companies to dispose of them within 5 years. Under the revised law, 20.64% of shares in Samsung Everland are to lose voting rights immediately and be disposed of within 5 years, as they were obtained after the initial financial restructuring law that was enacted in 1997. However, it would not have a major impact on management¡¯s control, as Everland shares are not publicly traded and most of them are held by the Lee family. Some observers worry that the 5% rule may expose SEC to threats of hostile M&A attempts, as foreigners hold over 49% of the shares, compared with a less than 14% stake held by Samsung¡¯s management-friendly stakes. Samsung is unlikely to make any decision on the shares soon, taking a wait-and-see attitude until the next government¡¯s chaebol policy becomes clear.
 
SK Group has been focusing its energy and telecommunications businesses in China, the Middle East and South America. SK Group has invested nearly $1 bil in China in 2006 alone, more than the group¡¯s investment during past 15 years. SK Group has now a strong presence in China's oil and mobile handset distribution sectors, clinching a deal to co-develop TD-SCDMA with Chinese government. In May 2005, SK Engineering and Construction secured an exclusive $1.22 bil deal with Kuwait Oil Company and won another $1.23 bil deal with Petrochemical Industries Company, a state-run petrochemical company in Kuwait, in only 8 months after. In South America, the group is exploring and developing oil fields in 4 different sites in Camisa, Peru, with estimated reserve of 600 bil barrels of oil and 8 tril cbm of natural gas, expecting hefty revenues for the next 30 years. It is also participating in a field developing in Brazil, which is expected to be ready for production in the second half in 2007.
 
GS Caltex Corp has detected a gas and oil reserve in its ground development project in northern Thailand, expecting to produce 1,254 barrels of high quality light crude oil per day and 720,000 cbm of natural gas, starting the production from 2008. The company purchased a 30% stake in the exploration project from Siam Moeco in July as part of efforts to secure crude oil supplies. GS Caltex is engaged in the project in Cambodia, Indonesia and Yemen. The company aims to supply 10-15% of its annual refining capacity of 722,500 barrels per day from its own oil developments.
 
Doosan Heavy Ind acquired Mitsui Babcock, renaming Doosan Bobcock Energy LTD. It became one of 4 major firms in the world, with B&W, Forster Wheeler and Alstorm, to hold the basic knowhow to produce the boilers.

Shares of KT&G fell by 4.60% on the sale of 7 mil shares, a 4.7% stake in the tobacco and ginseng manufacturer, which was sold by Carl Icahn. The transaction is worth about KW424.9 bil. Icahn consortium bought 776 mil KT&G shares over in 2005, at a cost of about KW335.1 bil. The consortium also succeeded in convincing KT&G to return about $3 bil in cash to shareholders, where Icahn pocketed about KW12.4 bil.

The Kumho Asiana Group completed payment for the acquisition of Daewoo Engineering & Construction, purchasing 72.1% stake in the nation's largest provider of apartments for KW6.42 tril. Daewoo E&C is to cooperate with Kumho Construction so that they do not compete in the same region. Kumho plans to focus on overseas projects such as the Dubai Airport expansion, worth between KW10-15 tril, and the housing business in Vietnam. Kumho could benefit greatly from Daewoo's business knowhow and experiences abroad, including Ecuador, Libya, Nigeria and Pakistan. It is also the world's largest builder of LNG tanks. Kumho Asiana Group is now able to reorganize itself based on 3 pillars, airline, chemicals and construction.

POSCO has completed an Indian facility capable of processing 130,000 tons of steel products annually in Pune, near Mumbai, India. The $14.5 mil processing center, consisting of shearing and slitting lines, begin to produce value-added steel sheets used in electrical appliances and automobiles. The Indian demand for flat-rolled magnetic steel sheets is projected to rise from the current 350,000 tons to 600,000 tons by 2010.
POSCO signed MOU with Thainox of Thailand, the biggest cold rolled producer in SEast Asia, for the strategic alliance in stainless steel business. POSCO will take 15% stake in Thainox, and Thainox will be supplied 80% of hot rolled stainless steel produced by POSCO.
POSCO agreed to buy a 10% stake in the Newpac mine in New South Wales, Australia, allowing POSCO to buy 400,000 tons of coking coal from April 1 in the year and 500,000 tons a year for the following 4 years. The world's third largest steelmaker will pay A$30 mil ($23 mil) for the stake for a coal reserve of 730 mil tons.
 
Korean builders received record orders from overseas in 2006 as growth in the global economy encouraged more development projects from the Middle East. They secured $16.5 bil in orders, 52% more on year, expecting more than $18 bil for 2007.
Doosan Heavy Ind signed a $510 mil deal to build power generation and desalination plants in Oman for the completion in April 2009 and a $170 mil thermal power station contract near Abu Dhabi, UAE, slated for completion in May 2009.
Samsung Engineering concluded a deal with Petrotrin of Trinidad Tobago to build a refinery worth $180 mil, to produce 28,000 barrel of product oil.
Kolon Construction won the project worth $239.8 mil from Russia to produce 300,000 ton of bioethanol a year.
 
MONETARY AND ECONOMIC INDICES

KOSPI started the month at 1434, dived to 1384 on the strength of KWon, hit 1442 thanks to Dow Jones surged to record high, then ended the month at 1434. The Korea stock market saw a relatively flat year in 2006, with the benchmark Korea Composite Stock Price Index climbing about 4%, while global market enjoys the abundant crop. Dow Jones kept renewing the record high breaking 12,400 barrier, Chinese index surged 121%, Russia 65.46$, Hongkong 34%, Jakarta 55%, and India 43.35% in 2006.
KWon fluctuated throughout the month. It started at 928 against USDollar, strengthened to 914, nine years low on the fear of US rate cut in 2007, weakened to 931 by the intervention of authorities and ended at 929. KWon has gained nearly 10% in 2006. The foreign exchange reserve in Dec expanded by $4.7 bil from Nov to reach $238.96 bil. It swelled $28.57 bil in 2006. Korean banks are slashing interest rates on foreign currency deposits in line with a tougher reserve requirement. Kookmin Bank, the largest lender, revised rates on deposits for terms of less than one week is 4.07%, down 0.09% from the previous 4.16%. Other banks are set to follow suit. The yield on 3 years corporate bond kept stable in the box of 5.15-5.08-5.31-5.29% through the month. The unemployment rate in Nov declined to 3.4%, down 0.1% from Oct.
 
SHIPBUILDING AND SHIPPING

The worth of orders secured by Korean shipyards in 2006 exceeds $50 bil level for the first time in the history, posting more than $51.2 bil, 39.7% up on year and 4 times of what they received in 2002. HHI Group recorded $22.5 bil up 21%, SHI $12 bil up 55.8%, DSME $11 bil up 61.7$ on year. STX won the orders worth $4 bil and Hanjin $1.7 bil, increasing 90% and 13% respectively. The record orders attributed to CSR, expected evaluation of CYan and application of new rule on coating.
The requirement of thick plate for 9 Korean yards estimated around 5.6 mil tons in 2006, of which 2 mil comes from POSCO, 1.5 mil each from Dongguk and Japanese steel mills, and 600,000 tons from China. Yards plan to increase the import from China in 2007 to 900,000 tons, reducing Japan¡¯s portion to 800,000 tons, as the prices and quality in Chinese products have been improved substantially.
China, secured order backlog of 27.2 mil CGT, became second largest shipbuilding country in the world, surpassing Japan¡¯s 25.4 mil CGT. Korea keeps its unshakable leader seat with 47.2 mil CGT. Korea maintained triple crown, by holding No 1 position in volume of order, order backlog and delivery in 2006, with the world market share of 40.4%, 37.2% and 37% as of end Nov, respectively.
 
HHI signed the world's largest ever offshore engineering deal worth $1.6 bil with ADMA-OPCO in UAE, to build 3 engineering platforms and underwater pipelines in the Umm Shaif oil field by 2010. The facility will produce 300,000 barrels of crude oil and a bil cbf of natural gas. The share price of HHI sored 84.2% in 2006, amid a sluggish stock market, thanks to the expectation of booming shipbuilding industry.
HHI secured the orders from Sovcomflot for 2 x 158K suezmax tankers, Kristian Gerhard Jebsen 4+2 x 115K pc, Flopec 2 x 105K tanker, TMT 4 x 316K VLCC and Emirates-based FAL Shipping 2 x 105K tankers, Hyundai Samho signed the contract with Irano-Hind for 1 x 159K tanker, SCI 2 x 4400 teu, Taurus of Japan 4 x 4900 teu and SK Shipping 4 x 319K VLCC. HMD got Nordic Tanker for 2 x 37.4K pc.
 
DSME agreed with Sovcomflot to build 2 x 157K tanker, Hamburg Sud 5+1 x 6000 teu boxships and TMT 2+1 x 317K VLCCs.
DSME and Nigeria¡¯s state oil company are to form a new shipowning joint venture, namely Nigeria-Daewoo Shipping Ltd, which will be owned 51% by NNPC and 49% by DSME, with the iniatial capital of $10m, aiming at ¡°local and international marine transportaion of merchant goods, crude oil and petroleum products¡±.
STX had an order from Iona for 1 x 51K pc and Hanjin from Emarat Maritime LLC 4 x 114K aframax tankers.
Sungdong agreed with Songa for 3 x 176K bulker. SPP got the order from TOP Tankers 4+2 x 50K pc/chemical and IMS of Greece 2 x 50K MR PC.

Hanjin Shipping established strategic ties with K-Line of Japan, by acquiring a 3% stake each other, following similar deal with Korea Line.
Korea Line was reported to order a 58.5K bulker to Japanese yard for the delivery in 2009. STX Pan Ocean ordered with Nantong Nikka Shipbuilding for 1+1 x 29K bulker.
Global rates to move containers are likely decline for a second year in 2007 as capacity growth from vessels under construction will outstrip demand. Shipping line¡¯s capacity may expand more than 13% next year to over 10 mil TEU, while demand grows slower pace of around 9.7%.