hankyoreh

Shipping containers fill a yard in Busan Port in this undated photo. (Yonhap News)

Soaring oil prices have put a damper on South Korea’s trade balance.

According to Korea Customs Service figures shared on Thursday, the balance of trade — the value of exports minus the value of imports — showed a deficit of US$5.199 billion for the period from April 1 to 20. At US$36.285 billion, exports were up by 16.9% year over year, but imports jumped by 25.5% to US$41.484 billion over the same period.

An examination of monthly trends in the balance of trade showed it recording its first deficit in 20 months in December 2021 at US$450 million. So far in 2022, deficits have been recorded in January and March, with only February showing a surplus.

The biggest factor in the negative trade balance trend appeared to be the rise in energy prices.

South Korea’s economic structure is quite heavily dependent on energy imports. In the past, there has been a tendency for the trade surplus to decline or slip into negative figures when energy prices have spiked. In the case of 2008, when international oil prices topped US$100 per barrel, it registered deficits for every month except May, October and December.

For the month of April, South Korea has recorded US$10.194 billion in imports of the three major energy sources as of Wednesday. This included US$6.875 billion in crude oil, US$1.91 billion in natural gas, and US$1.409 billion in coal.

Compared with the same period in 2021, the numbers were up by 82.6% for crude oil, 88.7% for natural gas, and 150.1% for coal.

“There hasn’t been any major change in volume over that period,” explained a Ministry of Trade, Industry and Energy official in a telephone interview with the Hankyoreh. “The main factor in the rise in the import dollar value has been rising prices.”

Indeed, figures from the Korea National Oil Corporation’s Petronet site showed that the price of Dubai crude oil — which accounts for a large percentage of South Korean imports — has exceeded US$102 per barrel this month, compared with an average of US$62.90 per barrel in April 2021.

Coal prices also topped US$400 per metric ton (for coal from Newcastle, Australia) last month in the wake of Russia’s invasion of Ukraine. While that level has dropped as low as US$250 this month, it is still more than twice as high as in April 2021.

Natural gas (Henry Hub) prices were also up by more than double over the same period.

Increasingly dismal export predictions are another factor driving the trade deficit.

To begin with, the situation in Ukraine has had the effect of reducing global trade in general. In its recently published World Economic Outlook, the International Monetary Fund lowered its predicted rate of increase for global trade in 2022 to 5.0% — all the way from 6.7% predicted in October 2021.

China’s lockdown in Shanghai to prevent the spread of COVID-19 has also had a negative impact on South Korean exports. As of Wednesday, exports to China in the month of April were up by just 1.8% from the same period in 2021.

The decline in the value of the won — with exchange rates in excess of 1,200 to the US dollar since February — has not been much help with exports. With South Korea’s mainstay export items now consisting mainly of high-value-added items like semiconductors, the influences of exchange rate changes are smaller than they had been in the past.

“The era of achieving exports based on price competitiveness is over,” said a Bank of Korea official. “The impact on exports [from exchange rate variations] has fallen substantially.”

Joo Won, director of the economic research office at the Hyundai Research Institute, said, “Owing to factors such as the Ukraine situation, we can’t rule out the possibility that the negative trade balance will continue through April and into June, or even that the annual trade balance will be negative.”

Since 2000, the only year in which South Korea’s annual trade balance was negative was 2008, when it recorded a deficit of US$13.3 billion at the height of the global financial crisis.

By Lee Jeong-hun, staff reporter

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