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  Korea Report - March 2005
  Author : Hwang & Co     Date : 05-04-16 11:16     Hit : 18085    
Topics.

-President Roh demanded Japan for the compensation for Korean victims during Pacific War.
-Japan claims sovereignty of Dokdo and distorts history book.
-Civil Law on family system was revised, abolishing Confucian tradition.
-Government to raise strategic oil reserve and develop energy sources.
-SK Group Chairman Chey Tae-won survived Sovereigns second attempt to get rid of him.
-Head of KOGAS fired by shareholders.
-KOSPI hit highest at 1022, while Kwon briefly broke 1000 barrier against USD.
-Shipbuilders are optimistic with some odd questions.
-HMD ended ship repair business.
-HMM springs back into block.
-STX PanOcean determined to enter LNG operation.

GOVERNMENT AND POLICY

President Roh Moo-hyun, in the speech made for the anniversary of Independence Moves of March 1st in 1919, called on Japan to settle remaining disputes over its brutal colonial rule over Korea by taking proper measures, including compensation for Korean victims of its oppression from 1910-45. He said, after finding out the truth of the past, Japan should sincerely apologize for the wrong doings and compensate, if required, and then reconcile, as it is the universal way of clearing history issues. It was the first time for a Korean president to raise officially the issue of Japan's compensation for Korean victims since 2 countries normalized ties in 1965.

The assembly of Japans Shimane Prefecture approved the bill designating Feb 22 as the Takeshima Day, Japanese name of Dokdo. A small cluster of rocky islets in the East Sea, a rich fishing area, have been administrated by SKorea since 1953 and are currently occupied by a its police unit.
An attempt to justify Japan's Pacific War and colonization of Korea by revising the history textbook for use in secondary school, is adding fuel to the ongoing bilateral disputes that came back into public focus with renewed Japanese claims to Dokdo islets. The text book describes that the China-Japan war was provoked by China and attempts to justify Japan's colonization of the Korean Peninsula, beautifying all the wrong doings during the period.
Korean government declared that Dokdo is not a subject for negotiation and demanded Japan stop to its irrational claims and its history distortion, saying that Japans claim to Dokdo is tantamount to another invasion. Government decided to add diplomatic pressure against Japan by seeking stronger alliances with East Asian nations which suffered Japanese invasion during Pacific War. President Roh reiterated he will meet Japanese Prime Minister in the first half of this year, as scheduled, to discuss the diplomatic row over Japan's fresh claim to the Dokdo islands and distorted history textbook.

Bowing to escalating public and political pressure, Lee Hun-jai, Finance Minister and deputy PM, Koreas top economic policy-maker and the most recognized Korean leader among global financial institutions, resigned to take responsibility for multi-billion won property deals that sparked ethical and legal questions. President Roh named trade expert Han Duck-soo, Minister of the Office for Government Policy Coordination, as his new finance minister.

The sweeping revision of the Civil Law passed by the National Assembly, calls for significant and controversial changes in the nations traditionally male dominated family system since it will abolish the age old practice of patriarchal family headship. The new system will challenge the established Confucian tradition that a man's family name is passed on to his off spring. Children will be able to follow the mother's name, with mutual agreement of both parents, and to be able to change their family name to that of the stepfather.

Korea will try to ink bilateral free-trade agreements with at least 15 nations by 2007. Asias third-biggest economy has only one FTA, a pact signed only last year with Chile.
Government plans to lure KW790 bil in investments through 2010 to build an industrial cluster for radio-frequency identification (RFID) technology in Songdo, near Incheon.
Government plans to use retired policemen to patrol schools in Busan, in a pilot program aimed at tackling school violence, under its 5-year plan to crack down on school violence.
Gearing up for a big fight against the looming population crisis posed by a low birthrate and an aging society, government is planning to set up an ad hoc committee to look into the problem and plans to funnel a multi-trillion won budget into a nation-wide campaign. It targeted to raise the birthrate to 1.6 from current 1.19 close to being the lowest in the world.
Government cracked down on unsolicited marketing activities via fixed-line telephones, mobile phones, text messages and facsimiles for the first time since it began action to stop the spread of spam. It plans to slap a total KW720 mil in fines for 35 spam-related cases this year.

NORTH KOREA AND NATIONAL DEFENSE

Chinese chief negotiator Wu Dawei had separate meetings in Seoul with US ambassador and SKoreas Unification Minister, in an intensified diplomatic drive to get NK back to the negotiating table to end its nuclear standoff. He urged bilateral contacts between NK and USA, but USA said that NK could speak directly to USA within the context of 6-party talks.
US Secretary of State urged NK to make a strategic choice to give up its nuclear weapons, assuring that USA has no intention of attacking NK. The US Joint Chiefs of Staff said USA has the capability to provide security for its allies, despite that they are very busily engaged in both Afghanistan and Iraq. NK's foreign minister said it may increase its arsenal of nuclear weapons to maintain a balance of power in the region and prevent an attack by the USA.

President Roh said that US troops on the Korean Peninsula will not be allowed to expand their role and get involved in disputes in Northeast Asian nations without SKorea's consent, apparently considering the tense situation between China and Taiwan
China's parliament passed a law authorizing an attack to stop Taiwan from pursuing formal independence, a day after President Hu Jintao told the Chinese military to be prepared for war. USA and Japan opposed the law, but Russia and Pakistan said it is internal affair in China.

SKorea starts supplying electricity to a pilot industrial park in the NK border town of Gaeseong even amid tension over NK's nuclear weapons program.
A US State Department reported that NK is suspected of continuing its state sponsorship of drug trafficking and other forms of criminal behavior to earn foreign currency,
NK officially recognized the outbreak of bird flue in its territory, saying that many hundreds of thousand of chicken have been killed. SKorea is to provide assistance to NK to prevent the possible spread of bird influenza.

ECONOMY AND POLICY

Korea's GDP growth in 2004 posted 4.6%, higher than expected, thanks to good export and increase in facility investment. However, the record in 4th quarter showed only 3.3% rise due to slowed export expansion. Per capita GNI in 2004 rose to $14,162, up 11.3% on year. Morgan Stanley lowered its forecast for Korea's GDP growth to 3.8% this year, citing continuation of slower export growth, strengthened KWon and deteriorated labor market.

The export gained 14.2% in March on year to $24.2 bil, surging from 6.7% growth in Feb. Imports rose 18.3% to $22.6 bil. Exports to Chile surged 37.7% on year in 2004 to $690 million due largely to a free-trade agreement that went into effect in April. Korea's deficit in the agricultural area stood at $10.42 bil, up 10.1% on year, attributing to the increase to broader domestic market access and weaker price competitiveness of local product.
Current account surplus narrowed to $1.01 bil in Feb, the lowest in 11 months, as export growth slowed largely due to fewer working days. It was also compared with $3.87 bil in Jan and a revised $2.9 bil a year earlier.
Total outbound investment in Jan rose 25.6% on year to $340 mil during the month, while the  investment in overseas real estate increased more than 20 fold on year to $15 mil. Foreign direct investment into Korean manufacturing industry exceeds Korean investment to foreign country for the first time in 4 years. Foreigners invested $62.1 bil, while local investors made $49.9 bil abroad.   

Government decided to raise its strategic oil reserves to 135 days supply by 2008 from current 109 days, to better cope with unpredictable crude oil prices that threaten the nations chances of economic recovery this year. Government plans to invest KW325.9 bil for the development of new energy resources, such as solar, bio diesel and wind force. Government will also push to increase the supply of oil through overseas development to 10% of the country's total consumption by that year. Korea Trade Association estimated that oil price increase of average $5 per barrel would deteriorate the trade balance of $5.9 bil a year. Dubai oil prices once touched $48.6 a barrel, their highest level in its history, attributing to the weak dollar and the reluctance of the OPEC to pump more.
Additional gas reserves near the Donghae-1 gas field off Korea's east coast have been found, with the estimated reserve of about 800,000 tons of natural gas worth $280 mil. The commercial production expected to start in Dec 2007.

The US current-account deficit widened to a record $665.9 bil last year. US FOMC raised its call rate from 2.5% to 2.75%, saying it keeps the rate in measured pace. China lowered its USD denominated equity from 82% to 76%, increasing euro portion that much. Japan and India also declared to decrease the USD equity portion. China set the target of economic growth this year at 8%.

Sales at Korea's major department stores and discounters swung to an upturn in Feb thanks mainly to seasonal factors. The combined revenue at the nations top 3 department stores rose 6.2% in Feb on year, with sales at big 3 discounters jumping 26.3%.
Korean household debt had its biggest gain in 2 years in the fourth quarter, as the nations credit card use slowly got back on track, while tax cuts and record-low interest rates are spurring spending. The outstanding balance of household credit came to KW474.7 tril as of end of Dec, up 6.1% on year.

Morgan Stanley Real Estate Funds took a stake in New Songdo City Development in the city of Incheon, which is developing a 6 sq km retail, commercial and parkland project.
US based MetLife Inc has withdrawn its takeover bid for SK Life Insurance because of labor issues and other contract conditions. MetLife beat out HSBC Holdings Plc last Oct to be designated as preferred bidder.

CHAEBOL

Samsung Groups net profit soared 77.6% to KW12.7 tril, accounting for 24% of the listed companies' total net profit last year. It recorded a sale of KW89.2 tril, up 25.4% on year, taking up 14.7% of that of 531 listed firms.
Samsung Electronics (SEC) has developed the worlds largest liquid crystal display panel, challenging the Japanese dominance of plasma display panel technology in the large screen TV market. At 82-inches, the new LCD unveiled, is 17 inches larger than the previous largest LCD flat panel screen developed by Japans Sharp Electronics. Blumberg ranked SEC the second in LCD monitor sales holding 10% share of global market. It named Dell 1st with 19.8% and LGE 5th on 6.1%.

LG Electronics (LGE) has successfully tested an ultra-fast wireless phone with its Canadian project partner, Nortel Networks. The technology is called a high-speed downlink packet access network, a 3.5 generation mobile technology, can transmit data at a max speed of 14 megabits per second, allowing customers to watch TV streaming and other mobile broadband services via their handsets. LGE has hired Citigroup and Credit Suisse First Boston Holdings to manage its $800 mil bond sale. LGE is reported to sell the dollar-denominated bonds in its largest overseas debt offering in the next 6 weeks.
GS Holdings Corp, the parent company of Korea's second largest refiner LG-Caltex Oil Corp, plans to spend KW14.3 bil investing in 3 oil fields in Indonesia, by purchasing 30% of Korea National Oil Corp's stake in the project, waiting for the final approval from the Indonesian government. Project of the fields started from 1997 and will be completed by Sept 2009.

In retaining his executive director post for another 3 years, SK Corp Chairman Chey Tae-won received support from majority of the investors at the company's annual shareholders meeting. He survived a second attempt to unseat him by Sovereign Asset Management.
SK Networks, formerly SK Global, the trading arm of SK Group, is expected to be released from its debt workout program early next year, as its business performance is improving considerably. It was revealed KW1.55 tril in accounting irregularities in early 2003.

Hyundai Motor plans to invest $500 mil in India by 2008 to expand capacity. Hyundai Motor Group has signed an 8-year sponsorship agreement with FIFA to run from 2007.
Hyundai Capital Services is to raise JY44 bil in Japan through the sale of the 3-year samurai bonds at the London Interbank Offered Rate plus 1.6%.
Ssangyong Motor plans to build a factory in China with its biggest shareholder, Shanghai Automotive Industry, as one of its mid and long-term plans.

Hynix Semiconductor was unfairly penalized by EU tariffs, WTO ruled. The US and the EU accused Korea of illegally bailing out Hynix through government-backed restructuring packages. The US slapped 45% duties on Hynixs memory chips and EU regulators imposed a 35% levy. The WTO ruled against the US tariff last month.
Hyundai Construction has won the contract from UAE for Dubai Pam Deira dredging and reclamation project worth $47.0 mil to complete in 36 months, and from Kuwait for the Ethane Recovery Plant project worth $397 mil to be completed by Sept 2007.

Korea Asset Management gave Doosan Heavy Ind, who offered $1,8 bil in Jan, the go-ahead to take over Daewoo Heavy Ind. Doosan raised KW800 bil in a syndicated loan from 14 banks to fund nearly half of its purchase of Daewoo Heavy.

KOGAS's Share holders fired its CEO, Oh Kang-hyun, in what would be the second premature departure of its head in 2 years. Oh was accused of damaging KOGAS's reputation by playing golf with private power company heads and threatening the nations energy supplies by swapping gas with Japans power co. Oh is preparing legal counter measure.

POSCO has signed a MOU with Indonesian miner PT Aneka Tambang on a feasibility study for a ferronickel joint venture, seeking to establish a joint facility in Indonesia to produce 30,000 metric tons of nickel per year, with production starting in late 2009, if all go well.
POSCO agreed to increase the import price of iron ore from Brazil 71.5% to $37.6 per ton and 119.2% for coal to $125 per ton, in line with Japanese steel makers. Korea's crude steel production capacity ranked 5th in the world with 47.5 mil tons last year.

MONETARY AND ECONOMIC INDICES

KOSPI started at 1007, soared to 1022, the highest in 62 months on the highest Dow index, plunged to 955 due to continuous foreigners' selling, rising oil price and shaky exchange  and interest rate, and ended the month at 965.
KWon exchange rate began the month at 1007 against USDollar, briefly broke 1000 through roller coaster trend, strengthened upto 1022 thanks to BOK's intensive intervention, then finished with 1015. Overseas funds kept selling Korean equities through the month, reversing net purchases in Feb. ING predicted that KWon would be strengthened to 960 against USD in 3 months. City Global Market predicted KWon gradually gaining the strength to KW940. KWon has risen more than 31% against the USDollar since 2002. BOK concerns that Kwon's ascent has reached serious level, with the signs that international speculators may be attacking the domestic currency. Korea's foreign reserves hit all time high standing at $205.45 bil as of end March, gained $6.38 bil during first quarter and a 70% rise from the end of 2002. The rising reserves are the result of buying US dollars by the BOK to rein in KWons appreciation.
BOK held its benchmark interest rate at a record low of 3.25% for March as the government reported a rise in consumer confidence for the second consecutive month. The consumer price index increased 0.6% on year to 3.3% in Feb mainly because of rise in prices for agricultural products. The yield for 3 years corporate bonds stabilized in the box of 4.56-4.34% through the month.

SHIPBUILDING AND SHIPPING

Shipbuilders become optimistic for the days to come, as ship owners keep announcing their expansion program, absorbing their raised prices. Qatar Gas increases its NB plan from 44 LNG carriers to 70 over next 5-6 years, Vela demands at least 30 VLCCs, Evergreen needs about 88 container ships in 8 years and 3 major Japanese owner plans to build 600 vessels by 2010. Korean, Japanese and Chinese yards are virtually full in their berth upto 2008, leaving good chances for European yards to sell their remaining 2006-7 berths. While shipping market enjoys prosperous days, there are still number of odd questions. First of all, how long this boom lasts. In the recent history, the high days have only lasted several months, but this time it comes to third year with no sign of being softened. Secondly how the owners could operate the ships with the ever soaring ships' price, as the prices of iron ore and coal keep rising, leading the production cost to jump to sky. Thirdly, people start to talk about 2007 as shaky year in shipping industry mainly because of collapsed balance between supply and demand, and year of 2008, in connection with social structural change in China after Olympic.
Korea's big 3 have clinched an exclusive deal with Qatar Ship Acquisition Team for its massive NB of 50 LNG ships for the delivery upto 2012.

HHI is reported to increase output of No 8 dock, extending from 360m to 460m to meet the expected massive LNG carrier orders. HHI has won the order from P&O Nedlloyd for 5 x 8600 teu, UASC 8 x 6800 teu, IRISL 4 x 6500 teu, CMA CGM 4 x 5100 teu, Dorian Hellas 1 x 82K VLGC and Bergesen 2 x 82K VLGC.
HMD ended its career as ship repairer by deliverying Sulakho this month, after the repair of 8,040 ships and 175 vessels' conversion work. HMD purchased 3.1% stake in HHI increasing its holding to 10%. HMD signed the contract with Erick Rickmers to build 2 x 4300 teu, Conti Rederei 6 x 1800 teu and Vroon 2 x 37K PC, 07

DSME posted sale of KW337.3 bil in Feb, 12.5% down on year, turned into operational loss of -KW67.6 bil. DSME got the order from Exmar for 2 x 84K VLGC. KOEXIM Bank has signed a contract with Swiss MSC to lend $188 mil to help it purchase 4 x 84000 TEU container ships from a DSME. Daewoo Mangalia received order from Hamburg Sud for 5 x 5600 teu and Conti Rederei 4 x 4900 teu.
SHI won the order from Arcadia for 1 x 115K tanker ice 1A.
STX secured the contract from Pietro Barbaro for 2 x 53K ice 1A.
Hanjin took the order from IRISL for 4 x 6500 teu, German NSC 4 x 5100 teu and CMA-CGM 2 x 4400 teu.

Daehan got the order from Normed for 3+3 x 687 teu. Daesun won the project from Indonesia Navy with 2 x Landing Platform Dock, and INP from Lauritzen Kosan for 2 x 8K LPG carrier. 21st Century committed to Hellas Star with 2 unit, Camillo Eitzen 1 and Bergshav 2 units of 13K chemical carriers.

HMM springs back into black, posting a net profit of KW427.86 bil in 2004, against a loss of KW45.3 bil in 2003. Revenue jumped to KW5.11 bil from KW3.94 bil in 2003. For HMM's NB project, 10 banks are bidding for 12 year syndicated loan of about $910 mil to finance the construction of 4 x 8600 teu and 5 x 4700 teu cont ships at HHI.
STX Pan Ocean declared its determination to enter LNG shipping with its all might, against rather negative reception from the consortium members, such as KOGAS, HMM, SK Shipping, Hanjin and Korea line.
SK Shipping turned its net profit into black in 2004 with KW 353.2 bil, on the revenue of KW1.67 tril, up 24.8% on year and operational profit of KW115.4 bil, 5.6% up.
Korea Shipping posted net profit of KW21 bil, keeping 20 years consecutive earning, on sales of KW491.6 bil and operational profit of KW14 bil.
Seyang Shipping, bulker and car ferry operator, has increased net profits in 2004 to KW15.97 bil from KW14.81 bil in 2003, on the back of a big jump in revenues to KW236.89 bil from KW112.26 bil in 2003. Seven Mountains increased its stake in Seyang Shipping to 19.59% aiming stabilizing management right of the company.