Virus taking heavy toll on key industries
The country's shipbuilders suffered a 71 percent decline in new orders in the first quarter compare to the same period last year. gettyimagesbank
Business performance expected to further worsen in Q2
By Kim Hyun-bin
The country's key industries have been hugely affected by the COVID-19 pandemic, with many experts raising concerns that the situation could get worse in the second quarter as the novel coronavirus is having continuous unforeseeable impacts on the global economy.
The shipbuilding industry has been hit hard by the pandemic with companies unable to attract new orders. In the first quarter last year, there were 14 new deals for liquefied natural gas (LNG) ships, which raised hopes the industry could be on a path to recovery after years of stagnation.
Just late last year, the expected value of the country's LNG shipbuilding was rated in the top tier globally with many analysts at the time predicting the “industry could be on the path to recovery”.
However, COVID-19 has frozen the global economy and drastically raised uncertainty, in addition to plummeting oil prices which have played their part in reducing new orders by 71 percent compared to the same period last year.
“Ship owners have been postponing orders and there are signs they could cancel existing contracts due to the virus,” Lee Byung-chul, vice chairman of the Korea Offshore & Shipbuilding Association said. “If the situation is prolonged, there will be postponement in payment dates, which could create a liquidity crunch. The government needs to extend deadlines for loans as well as increase support and loans to small and mid-size businesses.”
Executives from the car, steel, heavy machinery, petrochemical and shipbuilding industries held a meeting under the auspices of the Korea Chamber of Commerce Industry and voiced concern that “the real crisis could come in the second quarter.” They called on the government to become a “relief pitcher” for the crisis.
“In past financial crises the country's economy was able to sustain and rapidly recover as key industries were able to hold their ground, but there is a possibility the manufacturing industry could fall apart amid COVID-19,” the group emphasized.
Hyundai and Kia Motors are also taking the brunt of the pandemic, having to close numerous domestic and overseas plants, which has created a negative domino effect on parts suppliers and related firms including steel and tire manufacturers.
The carmakers' decision led Hankook Tires to halt production at its Tennessee plant, while Kumho Tires temporarily stopped operations at its two domestic plants.
“Global sales for Hyundai and Kia global in March recorded 535,000 a decrease of 15.3 percent compared to last year. COVID-19 could continue to halt production at overseas plants for the time being especially in Europe and the U.S.,” Lee Sang-hyun, an analyst at IBK Securities said.
Concerns are also looming over the steel industry with a continuous decline in demand that has left the company with large stockpiles.
Prominent global steel companies such as U.S. Steel and ArcelorMittal have started to halt operations. Since April 13, POSCO's Gwangyang steel plant has started to reduce the circulation of scrap iron, while Hyundai Steel reduced production at its Dangjin plant by 30 percent.
Financial experts forecast the steel companies' output in the first quarter will be half that of last year, and expect it to get worse in the second quarter.
Chemical companies have also halted plant operations. SK Global Chemical an affiliate of SK Innovation halted production at its Ulsan naphtha plant in December for the first time in 48 years.
The decomposition of naphtha is a fundamental process in the petrochemical industry, and is the base component used to create polyester, polyethylene and polypropylene.
In addition, the company plans to temporality halt operations at its synthetic rubber plant in the second quarter.