Pushing Manufacturers into Downward Cycle
Drops in prices of Korea’s main manufacturing items such as polysilicon, ethylene and gasoline, on top of semiconductors, are pushing Korean manufacturers into a downward cycle. Prices of these items are dropping due to China's supply glut, the continuing trade war between the United States and China and a sudden drop in demand due to policy changes. If Korean manufacturers lose in competition with China, they will have no choice but to lose their price competitiveness.
Polysilicon prices, which had remained at US$16.3 per kilogram in February 2018, fell to US$8.9 in February 2019, said market research firm PV Insight on Feb. 18. The price maintained at US$15 per kilogram until May last year, but it dropped to US$12 in a month after the Chinese government announced its plan to cut down on subsidies for solar power generation products. The break-even point (BEP) of polysilicon makers is US$14 per kilogram. The more Korean companies produce polysilicon, the more they lose money.
It seems not easy for Korean companies to make a turnaround. According to Bloomberg New Energy Finance, global polysilicon production capacity will swell by 23.7 percent year on year to 110,000 tons this year, double the rise in demand from the solar power generation industry. The continued oversupply prevents a rebound in polysilicon prices. As a result, Korea's second-largest polysilicon maker Hankook Silicon went bankrupt and is put up for sale, while OCI is considering expanding production facilities in Malaysia.
Prices of semiconductors, which accounted for 22.1 percent of domestic exports last year, keep falling. Last month, fixed transaction prices of DRAMs for PCs fell 17.2 percent to US$6 from the previous month, and dropped 27 percent over the past four months.
The Singapore Gross Refining Margin, a key indicator of refiners' profitability, hit US$1 per barrel for the first time in 10 years. Prices of ethylene, which is called the rice of the chemical industry, dropped 20 percent from a year earlier to US$1,086 a ton, as well. Chemical and petroleum products accounted for 8.7 percent and 8.2 percent of Korea’s total exports last year, respectively.
The domestic shipping industry is also suffering from drops in shipping charges following the collapse of a Brazilian dam, which pulled down the average monthly charter rate of a cape size (150,000 tons) iron ore carrier, the largest among iron ore carriers, by 40 percent from the beginning of this year.