Business | Economy
Triple whammy of import woes dogs Korean firms
South Korea's grain, metal and oil importers are struggling to keep commodities flowing into Asia's fourth-largest economy as they face a constricted global credit market, a domestic dollar squeeze and tumbling won revenues.
- Reuters
- Published: 23:26 November 2, 2008
Seoul: South Korea's grain, metal and oil importers are struggling to keep commodities flowing into Asia's fourth-largest economy as they face a constricted global credit market, a domestic dollar squeeze and tumbling won revenues.
Reeling from that potent treble whammy, raw material buyers say their plight is worse than the woes facing other big importers from Japan to Europe, but has been forgotten by a government focused more on its export-oriented firms and on taming the domestic turmoil caused by the global crisis.
As a result, some importers are considering running down inventories or tapping government stockpiles to keep production going, one of the starkest signs of how the worst financial crisis in 80 years is starting to take a toll on commodities trade.
'What measures'
"Measures? What government measures? Commercial banks have virtually stopped extending trade financing support," said one official at a major copper concentrate importer, who asked not to be named because of the sensitivity of the issue.
"We are hanging on to just one or two state banks for financing and tapping overseas banks mostly ... If the current situation continues, importers will in the end have no choice but to cut purchases."
South Korea is the world's fifth-larget importer of crude, third-biggest buyer of corn and a major consumer of base metals, the prices of which have already more than halved since hitting record highs earlier this year as a global recession takes hold.
A deterioration in imports would not only add to the market gloom, but could undermine the flow of fuel, steel or food that keeps the economy running, affecting companies from the world's number-four steelmaker Posco to SK Energy, which operates the world's second-biggest refinery.
A glance at the Baltic Exchange's dry freight index shows the dramatic impact the crisis is having on global trade of grain, coal and ores - it's down 80 per cent since mid-September.
At the heart of the problem is trade financing, the lending lines that banks extend to companies to help them manage the cost of buying commodities in bulk for resale on a smaller scale.
Credit crunch
The credit crunch has forced banks to cut corporate credit lines dramatically as they struggle to raise dollars and roll over short-term foreign currency debt, most of it linked to trade financing.
In the past two weeks, the South Korean authorities have announced a $130 billion (Dh478.14 billion) rescue package aimed at easing the liquidity squeeze, secured a $30 billion currency swap deal with the US Federal Reserve and enacted the biggest-ever rate cut to uncork the clogged money market, but funds are still not flowing.
Instead, domestic banks, seen as more vulnerable than most to the global credit crisis and thus ever more risk-averse, have cut trade financing periods from 180 days to as short as 30 days.
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