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Korea Report - October 2004

Author : Hwang & Co Date : 04-11-12 10:59 Hit : 38989

Topics.

-The Constitutional Court declared unconstitutional for the law to move capital.
-Iraqi terrorists threatened attacks to Korea unless Korea withdraws troops from Iraq.
-USA will reduce its troops in Korea by 12,500 by 2008.
-Korea\'s export in 2004 broke $200 bil barrier already in Oct.
-WTI crude price hit $55.88 per barrel.
-China raised interest rate by 0.27%.
-Hyundai Motor Group acquired Hanbo Steel.
-POSCO to expand Kwangyang LNG receiving terminal to 3 mil tons a year.
-Exchange rate of KWon against USD reached 1118, the strongest in 4 years.
-HHI completed an Aframax tanker on land.

GOVERNMENT AND POLICY

The Constitutional Court declared that a special bill from the National Assembly passed last year to move the capital down to the nation’s central area was indeed unconstitutional, as the fact that Seoul is the capital of Korea has been acknowledged as a Conventional Law which can not be changed without a referendum. It immediately dismembered the law and the controversial project to build a new administrative capital faced suspension. The decision dealt a severe blow to President Roh Moo-hyun, who had said he would risk the fate of his administration to push the plan. Moving the capital was Roh’s foremost presidential election campaign promise.
Public opinion poll showed that six out of ten support the decision of the Court. The ruling party and the government are struggling to find alternatives after the Court\'s reject, suggesting some possible options to move some government agencies to the planned site or the establishment of company cities in the region, neither of which would require a constitutional amendment.

President Roh suffered another political blow when his ruling Uri Party was embarrassed by defeats in the by-elections for the heads of small cities and counties and local councilors. Out of total of five mayoral and county head seats, the Uri Party only won one. The Uri Party did worse in the polling for Provincial-level councilors, winning none of the seven vacancies. The Uri Party has been suffering tumbling popularity, since its April general elections victory. A public opinion polls showed nearly 72% did not think Roh was properly administrating the nation.

Government announced that a law school system will be introduced to Korea in 2008 and the present bar examination will be abolished by 2013. Many people have been aware of the fact that a major change is needed. Intense competition and an irrational education system to enter the law circle have long been pointed out as serious problems of the current judicial system. Under the American law system, students follow various majors and choose whether to go to law school after graduating from college. This prevents unnecessary early competition, and also helps broaden their outlook.

Korea is on track to resume exports of poultry to the USA, Japan and other countries after declaring itself free from bird flu.
Mitsui & Co, Japan\'s largest trading company, signed a preliminary agreement with Korean authority to invest in Gwangyang Port.
6 leading IT firms from both home and abroad agreed to invest $1 bil to create a digital entertainment town in Songdo, an area in the port city of Incheon, providing the basic facilities by 2006.

NORTH KOREA AND NATIONAL DEFENSE

Korea went on a high alert after an audio tape attributed to a top al-Qaida leader urged Muslims to attack the US and its allies, including SKorea. Another Islamic Group identifying itself as the Matyr Hammou Al-Masri battalion stated that it would attack facilities in Korea one by one, if SKorea does not pull its troops out of Iraq. The Navy is planning counter-terror team, and the airport authorities act to tighten immigration control. Tens of thousands of police stepped up security at foreign embassies and other key facilities in Korea, including tightening checks on foreign arrivals at airports and seaports.
SKorean troops and citizens in Iraq have been urged to maintain a high-level of personal security awareness upon intelligence that terrorist groups, including a group linked to al-Qaida, are offering a reward for kidnapping Korean nationals.
US Defense Secretary Donald H Rumsfeld made a surprise visit to recently arrived SKorean troops stationed in northern Iraq, expressing words of encouragement and telling them their mission is crucial in the fight against global extremism.
The Defense Ministry announced to extend the Korean troop presence in Iraq for an additional year to the end of 2005, despite a series of threats by Islamic militants to abduct and kill SKorean troops and nationals.

US and SKorea have formally announced that they have struck a deal to delay the completion of 12,500 US troop reductions in Korea until 2008, three years behind the original US plan. The agreement is expected to buy time for Seoul to build up its own defense system against the strong NKorean military.

NK is thought to posses up to 9 nuclear weapons and enough plutonium to make several more, a NGO suggested.
US Secretary of State Powell reiterated that the USA has no intent to attack NK, urging NK to return to the negotiating table.
China deployed 10,000 troops earlier this month in 3 areas along the Tumen River, which forms part of the border between China and NK, to prevent NK\'s people from entering the country.
President George W Bush signed into law bill to promote human rights in NK and provide humanitarian aid to citizens and refugees of NK, making them eligible for asylum in USA. SKorea expressed opposition to pressing NK to improve its human rights conditions.

ECONOMY AND POLICY

After months of denial, government has finally admitted that Korea\'s economic growth rate in 2005 could chop off around 1% from its forecast of 5% growth for the GDP next year, due to the surging oil prices and sluggish domestic demand. IMF lowered its outlook on Koreas real GDP to 4.6% this year instead of 5.5% projected in April. BOK predicted GDP growth next year down to 4% level, barely keeping 5% this year.

Korea\'s exports broke $200 bil barrier first time in the history this month, expecting to reach $250 bil, led by robust sales of mobile phones, semiconductors, electric appliances and automobiles.
At the end of this month, exports of automobiles, including used and those assembled overseas, will amount to $20.5 bil.
Koreas current-account surplus nearly tripled in Sept to $2.9 bil up from $1.1 bil in Aug, driven by strong exports.
Korea\'s investment in overseas manufacturing industries exceeds $3 bil level reaching $3.03 during the first 8 months of this year, up 75% on year, while local investment kept shrinking due to economic slump and labor cost hike.
Trade volume between Korean and India has grown from $15 mil in 73 to expected $5 bil in 2004. India became 5th largest business partner for Korean by investing $2.6 bil.

Consumer confidence in Sept rebounded to 88.9 from a 4 year low of 87 in Aug, with a rising stock market, lower interest rates and tax incentives apparently buoying optimism.
The BOK\'s index of manufacturer’s expectations was unchanged at 79 for Oct from Sept, indicating that Korean businesses remain pessimistic even as the BOK cut its call rate in Aug and government increased efforts to prop up the economy.
Korea\'s banks are expected to reap a record KW7 tril in profits this year due mainly to falling loan-loss provisions and rising income from banc-assurance. Kookmin Bank has forecasted KW300 bil in third quarter profit, bringing its total for the first 9 months of the year to more than KW600 bil, compared with losses of KW381 bil in same period last year.

Oil prices has broken $50 barrier and kept soaring, renewing the records, to reach $55.88 per barrel of WTI, while the US heating fuel stocks ahead of winter fall, a strike began in Nigerian oil fields, hurricanes reduced output in the Gulf of Mexico and strong demand exacerbated global tight supply concerns.
Korea\'s crude oil import bill for Sept rose 39% from same month a year earlier to $2.48 bil. The impact of $10 crude oil price hike to Korean economy is estimated to lower 1.34% in GDP growth, to raise 1.7% in consumer price and to deteriorate trade balance of $6.09 bil.
Government, as the world\'s fourth-largest oil importer, is to maintain low fuel-import taxes until the end of April next year to help fend off inflation and ease fuel costs for companies.

The imports of 8 major raw materials such as copper, aluminum and lead surged 47.3% in the first 8 months of this year as their prices soared. Korea imported $6.28 bil of the materials, compared with $4.26 bil during the same period last year.
The price index for raw materials and intermediate goods jumped 16.1% in Sept on year, the highest since November 1998.

China has raised the interest rate by 0.27% first time in its history, signaling that Beijing is adopting more market-driven policies to combat an over heated economy that has fueled global growth and under- pinned commodity prices, and Beijing is more likely to achieve a soft landing for its economy. Korea will likely see a set back to its China-Bound shipments following China\'s interest rate increase. Yet the effect should be limited as the better odds of a soft landing for China\'s economy bode well for the global picture and much-needed stability in oil and commodity prices in a long term view.

Some 4.81 mil people, or one-fifth of the nation’s workforce, are effectively credit delinquents. The number of Korean\'s unable to pay loans and credit card bills fell for the second straight month in Sept, indicating that the debt-hit household sector is improving. The number fell 0.64% in Sept to 3.66 million, following a 0.42% decline in Aug.

CHAEBOL

Samsung Electronics\' third quarter operating profit failed to meet early market predictions due to slowing flat-panel display sales and tougher competition in the mobile phone market, dipping slightly under KW3 tril, significantly up from KW2.1 tril from a year ago but down from KW3.7 tril in second quarter. It recorded the sale of KW14.34 tril. SEC\'s officials said rising raw material prices and marketing for the Summer Olympics in Athens cut into the company’s profit margin.

LG Electronics is to build a $43 mil handset production line in India as part of its plan to increase sales by 10-fold til 2010 to $10 bil, compared with about $1.3 bil forecasted for this year. LGE plans to spend $150 mil in the country by 2007 and make India its second- largest overseas production base after China.
LG Group is to invest up to KW2.7 tril in research and development at its core divisions by 2008.

Hyundai Motor Group completed the acquisition of Hanbo Iron & Steel Co, considered being essential for strengthening the competitiveness of car manufacturing industry. It hopes to emerge as the worlds eighth-largest steelmaker once operations normalize, with the annual capacity of 18 mil tons, totaling INI\'s 12.7 mil, Hyundai Hysco\'s (Hanbo) 5 mil and BNG Steel\'s 0.3 mil tons. It plans to invest KW2 tril and employ 3000 new staffs for the steel division.
Hyundai Capital Services has been revamped as a 62:38 joint venture with GE Consumer Finance. GE is to commit more than KW1 tril in joint venture, aiming a foothold in Korea\'s KW10 tril auto-financing market.
Kia Motors agreed with Slovak government to start the construction of car plant this month with annual production capacity of 300,000 units, playing a key role to enter European car market.
Hyundai Mobis is to double its annual production capacity in China to 1 Million units by 2008, rolling out 530,000 units of car sets, chassis and transmission each year at its two assembly lines in Beijing and one in Jiangsu.

Doosan Heavy Ind won the project from Qatar to construct the super large distillation plant to produce 270,000 tons of water a day with a composite power generator of 1025 MW, for $270 mil.
Korean construction companies received a total of KW10.1 tril in orders to build apartments, plants and others projects through Oct 14 this year, down 33.2% on year, due mainly to a government crackdown on property speculation.

POSCO disclosed its plan to start operation of Orissa Steel Mill from 2009 with the annual production capacity of 50 mil tons within 10 years. It also plans to put $8.4 bil for coming 15 years to import 30 mil tons of iron ore from India.
POSCO Suzhou Automotive Processing Center is to start operation of new steel-processing plant to support the automotive industry, with the annual production capacity of 200,000 metric tons, the largest in China.
POSCO decided to invest KW280 bil for the expansion of Kwangyang LNG receiving terminal to the annual handling capacity of 3.0 mil tons from existing 1.7 mil tons, during Feb next year until Dec 2008..
POSCO posted a record KW1 tril profit in the third quarter with the net income doubled in the third quarter from KW499.6 bil a year earlier. It was the 9th straight quarter profit growth.
KOGAS selected preferred bidders such as Iran LNG, Malaysia MLNG III, Sahalin II, Australia NWS, Yemen YLNG out of 12 gas ventures in 9 countries, for part of a contract for the long-term deals to purchase 6 mil metric tons of LNG annually for 20 years starting in Jan 2008.

Shanghai Automotive Industry Corp, China\'s largest automaker, completed the acquisition of Ssangyong Motor for about $500 mil.
Daewoo Int concluded MOU with Indonesian authority to develop coal mine. 7 or 8 domestic and foreign financial institutions are interested in taking over Daewoo Capital, Korea’s third largest auto-finance firm. KAMCO, the largest share holder, plans to pick a preferred bidder in Nov and sign a contract by the end of the year.
IBM plans to sell 2 top-notch notebook computers in Korea in Nov, after deciding to dissolve a joint venture with LGE last month.
HP decided to spend $40 mil over the next 5 years on its research laboratory in Korea.

MONETARY AND ECONOMIC INDICES

KOSPI started month at 846, advanced to 889, a 5 year high anticipating more government\'s stimulus measures and an interest rate reduction by the BOK, dived to 808 at the collapse of Dow down below 9800 and unprecedented high oil price, and ended at 834.
KWon kept strengthening from 1153 against USDollar at the beginning to 1118 at the end of the month, its strongest levels in 4 years. Korea\'s foreign reserves reached $178.3 bil at the end of the month, up $3.86 bil from the end of last month.
Consumer prices remained unchanged at 3.9% on year in Sept from Aug. Record energy costs spurred Koreas import prices to jump 17% and producers\' prices to 7.5% in Sept on year, the biggest rise since October 1998. Putting inflation control over growth, the BOK kept its benchmark overnight call rate at 3.5% for a second straight month.
Korea\'s unemployment rate fell for the first time in 8 months in Sept to 3.5% from 3.6% in Aug.

SHIPBUILDING AND SHIPPING

World Scale for VLCC broke 200 barrier, lifting VLCC\'s price solidly above $100 mil level. Delos, Embiricos\' 320K to be delivered in Nov 2004, sold to Gulf Marine Management at $125 mil, when Agios Nikolaos III, 282K \'91, was reportedly fixed at WS275 by a Korean oil company, and Astro Lyra, 284K built \'95, booked at WS270 by Thailand oil company, breaking record rate of $200,000 per day.
POSCO announced to raise the prices of its shipbuilding steel plates from KW535,000 per ton to KW600,000, which was virtually accepted by shipyards in consideration of balance with Japanese plates whose price is more than KW750,000 per ton. Yards expect the escalation of steel prices until 2008 when China complete Olympic facilities.
It becomes a booming for the yards to match up with the shipping companies as a preparation for rainy days and maximizing synergy effect. HHI-HMM and Hanjin shipbuilding-shipping have already linked. STX recently acquired Pan Ocean and DSME purchased 7.5% stake in Korea Line for the strengthening the strategic ties to cope with increasing demands from KOGAS, KEPCO and POSCO.

HHI built 105K aframax tanker for Novoship on land first time in the world, by applying lift-skid-barge-launching method in 3 days. The method made the yard free to increase the building capacity extensively. The system will be used for 16 ships till 2007, including 8 units for Novoship, 4 TeeKay and 4 for QSC.
HMD won the NB project from the Gesco for 2 x 37K PC, NCC 4 x 46K PC, and Gulf Energy Maritime 2+2 x 47K and 3+2 x 37K PC. Grantham, Mayo, Van Otterloo Fund expanded its stake in HMD from 5.68% to 7.34%. A credit rating company raised the corporate credit rating of HMD from BBB+ to A-, attributing its abundant liquidity and stable order book.

DSME received orders from Sovcomflot for 1 x 146K LNG, Bergesen 1 x 145K LNG, Golar LNG 1 x 145K LNG, AP Moeller 4 x 8100 TEU, and Wallenius 3 x 8000 LCTC, the largest car carrier in the world.
DSME has bought 7.56% stake in KLC, who has ordered 2 LNG carriers at DSME and been threatened for M&A from Golar, seemingly playing balancing role between KLC and Golar.
SHI won the order from Geden Line for 2 x 115K tanker ice 1A. SHI agreed with Tsuneishi to jointly develop Aframax tanker design, expecting further expansion of cooperation in procurement, production, sales and management.

Hanjin Heavy Ind got the order from Korea\'s Coast Guards for 1 x 3000 t Guard Rescue ship and Cosco 4 x 5100 TEU container ship.
Daehan Shipbuilding contracted with mother company Daehan Cement for 2 x 10.3K cement carriers. Samho Shipyard agreed with its sister company Samho Shipping for 2 x 16.5K chem IMO II/III.

HMM\'s share price jumped to KW15,000 level, 5 years high, on the merge speculation. Hyundai Elevator, holding company of Hyundai Group, invested KW28.6 bil to expand its stake in HMM to 17.16%. HMM achieved the best performance in third quarter with the operating profit of KW185.4, up 56.9% on year, on the sale of KW1.3455 tril, up 30.8% on year, .
STX Group completed the due diligence to purchase Pan Ocean Shipping by Oct 18 and expects to conclude the deal by Nov 8.
Heung A Shipping requested to leave court receivership, as its finances and profits were improving. It made a net profit of KW8.46 bil in the first half of 2004, compared a net loss of KW4.1 bil in the whole 2003. It operates 40 vessels including 18 chemical tankers. Heung A placed an order for 2 x 1.25K chemical carriers at Sasaki Shipyard for the delivery of 5/6/2005.
Seven Mountain Shipping signed MOU to buy Woobang Construction, diversifying its business lines.