hankyoreh

An employee at the New York Stock Exchange glumly looks at the monitor’s figures on Mar. 12, when stocks took their worst plunge since Black Monday in 1987. (EPA/Yonhap News)

South Korea’s mainstay export industries such as automobiles and steel are facing a crisis for their first quarter performance amid the global novel coronavirus pandemic. As factory stoppages and other production setbacks have been coupled with a steep drop in demand, revisions to the companies’ targets and strategies for this year are looking inevitable.

One after another, securities companies are lowering their forecasts for the first quarter business performance of South Korean finished automobile companies. As of Jan. 23 -- before the coronavirus outbreak erupted in earnest -- Eugene Investment & Securities projected Hyundai Motor’s first quarter sales and operating profits at 24.88 trillion won (US$20.33 billion) and 1.12 trillion won (US$914.98 million) respectively. On Mar. 11, it moved to drastically revise those figures. Projected operating profits in particular were lowered to 870 billion won (US$710.75 million), a decrease of over 20% from the earlier forecast. Kia Motors’ projected first quarter operating profits were also lowered to 250 billion won (US$204.22 million), less than half of the previously predicted figure of 540 billion won (US$440.92 million).

“Due to problems operating its domestic factories and reduced domestic demand, Hyundai Motor’s domestic factory production in the first quarter has been just 363,000 units, which is down 11.8% from last year,” said Lee Jae-in, an analyst at Eugene Investment & Securities, adding that “operating profits are expected to decline by 49%” from the same period in 2019.

“Even if we take into account the factory situation in China, where production has been recovering this month, production will still fall short of even half what it was the first quarter of last year,” he predicted.

The automobile industry has been facing a vicious cycle -- first having to close its domestic factories due to difficulties procuring Chinese parts early on in the coronavirus outbreak, and then having to shut them down once again after reopening when confirmed cases of the virus were found at domestic workplaces. The virus’s spread to major markets such as the US and the countries of Europe has also been a major blow to overseas sales, with market experts predicting additional declines in Russia and the Middle East as oil prices plummet.

The steel industry is facing a familiar situation. On Mar. 11, Korea Investment & Securities published a report titled “Steel Spring Farther Off amid COVID-19 Outbreak,” in which it lowered its first quarter projections for POSCO -- South Korea’s leading steel company -- from 15.68 trillion won (US$12.8 billion) in sales and 1.14 trillion won (US$930.7 million) in operating profits (as announced on Feb. 3) to 15.38 trillion won (US$12.56 billion) and 580 billion won (US$473.54 million), respectively. In just over one month, the projected total of operating profits was reduced by nearly half -- reflecting concerns that the slump in automobile sales will translate into a steep drop in demand for steel plates, a particular profitable steel product.

Jeon Ha-neul, an analyst with Korea Investment & Securities, said, “The decline in steel product sales due to automobile production difficulties resulting from the coronavirus amounts to just 10%, but intermediate- and long-term sales are in for a severe blow due to the coronavirus’s spread beyond Asia into the rest of the world.” The oil refining industry is also poised to suffer worsening performance amid the combined effects of plummeting global oil prices and a steep dive in aviation fuel sales due to the virus’s effects.

The electronics industry is facing fewer concerns. On Mar. 11, Hanwha Investment & Securities projected first quarter sales of 56.92 trillion won (US$46.46 billion) for Samsung Electronics, up from the 52.39 trillion won (US$42.76 billion) it predicted on Jan. 31. Its forecast for operating profits over the same period was lowered slightly from 6.46 trillion won (US$5.27 billion) to 6.43 trillion won (US$5.25 billion). With no cases of operations being halted due to the virus -- and with electronic transactions and telecommuting actually increasing -- market analysts are anticipating that the semiconductor sector will more or less offset any decline in smartphone demand as memory semiconductor demand for servers rises.

But while many had expressed high hopes for semiconductor business to rebound in earnest as of the first quarter following its “rock bottom” performance in the fourth quarter of last year, some analysts are predicting the virus will result in the timeline for a full-scale recovery being pushed back to some extent.

By Song Gyung-hwa, staff reporter

Please direct comments or questions to [english@hani.co.kr]