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(LEAD) (News Focus) Korean manufacturers bear brunt of new coronavirus

Economy 16:41 January 31, 2020

(ATTN: UPDATES confirmed cases of coronavirus in 10th para; ADDS Hyundai and Kia's China sales figures in 16th para, shipbuilding industry and stock prices in last 4 paras)
By Choi Kyong-ae, Joo Kyung-don

SEOUL, Jan. 31 (Yonhap) -- South Korean manufacturers, led by carmakers, appear to be beginning to feel the pinch of the rapid spread of the new coronavirus, with possible disruption to production and plant operations around the corner, industry sources said Friday.

Hyundai Motor Co. and other major manufacturers have been operating plants in China to tap deeper into the world's No. 2 economy, but their efforts to shore up their lackluster performance in recent years may be eclipsed by the outbreak of the novel virus, they have said.

The country's five carmakers -- Hyundai, Kia Motors Corp., GM Korea Co., Renault Samsung Motors Corp. and SsangYong Motor Co. -- and two leading semiconductor firms -- Samsung Electronics Co. and SK hynix Inc. -- said their operations and production may face difficulties if the coronavirus situation goes from bad to worse.

Leoni Wiring Systems Korea, Inc., the South Korean unit of German auto parts maker Leoni AG, has recently decided to suspend operations at its wiring plant in China until Feb. 9. The decision will soon affect the production of vehicles at GM Korea, Renault Samsung and SsangYong.

The three carmakers said they are checking their inventories and looking for ways to secure the parts from other suppliers if things unfold unfavorably.

This undated file photo shows Hyundai and Kia's headquarters buildings in Yangjae, southern Seoul. (PHOTO NOT FOR SALE) (Yonhap)

"We will decide on whether to suspend our plant (in Korea) through consultations with the union after reviewing measures to replace China-made wiring parts with domestic ones," a SsangYong Motor spokesman said.

GM Korea and Renault Samsung said they are closely monitoring the situation involving the novel coronavirus to minimize the impact on production.

"We don't see any immediate impact on our production as we can receive wiring parts from our alliance partners Nissan Motor and Mitsubishi. But if the virus continues to spread, there will be some shortages of parts," a Renault Samsung spokesperson said.

The coronavirus first appeared in Wuhan, a central Chinese city of 11 million people, last month and has infected thousands and killed more than 200 in China. The virus has spread to around 20 countries, including as far away as the United States.

South Korea has reported a total of 11 confirmed cases of the novel virus as of Friday.

Hyundai and Kia, which do not receive wiring parts from Leoni's Chinese plant, are also expecting a lack of wiring and other parts from South Korean suppliers that have plants in China.

"It is a matter of global carmakers which have production facilities in China. We will look at measures to cope with lack of supply from China," a Hyundai spokesman said.

Hyundai has canceled overtime work scheduled for the weekend to produce the flagship Palisade sport utility vehicle at its plants in Ulsan, 410 kilometers southeast of Seoul, in a countermeasure to manage its parts inventories.

The fallout from the virus could deal a further blow to Hyundai and Kia, which have been struggling with declining sales in the world's biggest automobile market in the past three years.

In China, the carmakers' sales remained weak due to the lingering impact of political tensions between Seoul and Beijing over the deployment of an advanced U.S. missile defense system, called THAAD, in South Korea in 2017.

Hyundai and Kia's combined sales in China fell 22 percent to 909,000 vehicles last year from 1,161,000 units a year earlier. The two carmakers aim to sell 7.5 million autos globally this year, higher than the 7.2 million units they sold last year.

In April last year, Hyundai stopped production at one of its five plants in China, and in May, Kia shut down one of its three plants there due to lower demand.

(LEAD) (News Focus) Korean manufacturers bear brunt of new coronavirus - 2

South Korea's tech giants, in particular chipmakers, are likewise not insulated from the effects of the coronavirus.

Samsung Electronics Co., the world's No. 1 memory chipmaker and SK hynix are concerned that the spreading virus will slow chip demand in China, the world's largest semiconductor market.

Samsung runs a NAND flash plant in Xian, 800 km northwest of Wuhan, the virus' epicenter. SK hynix operates chip plants in Wuxi and Chongqing, both also roughly 800 km away from Wuhan.

They supply chips to Chinese tech giants like Huawei Technologies Co. and Vivo Electronics Corp.

"There is a possibility that this outbreak could have a short-term impact on the global supply chain," Roh Geun-chang, an analyst at Hyudai Motor Securities, said.

Samsung and SK hynix said they do not have plans to shut down their manufacturing facilities in China at this moment, but they are closely monitoring the situation.

They have already ordered their employees to avoid non-essential business travel to China.

"Currently, we do not have operation problems at our Chinese plants due to the virus. However, if (China's) scheduled Lunar New Year holiday until Feb. 9 is extended, we can't ignore the impact," SK hynix said in a conference call on Friday.

China's Lunar New Year holiday started on Jan. 25 and usually lasts for a week, but Beijing recently decided to extend it.

Industry observers said the spread of the virus may pour cold water over hopes of a recovery in memory chip prices and become a drag on chipmakers' earnings in the first quarter.

Samsung and SK hynix both reported poor earnings last year due to a slump in the memory chip sector.

In 2019, Samsung posted a net income of 21.74 trillion won, down 51 percent from a year earlier, while SK hynix's net profit plunged 87 percent on-year to 2.01 trillion won.

Local shipbuilders, led by Hyundai Heavy Industries Co., said they do not see any major impact on their businesses due to the virus.

"The shipbuilding industry went without any serious disruptions from the severe acute respiratory syndrome (SARS) 17 years ago and the Middle East Respiratory Syndrome (MERS) in 2015. The new coronavirus isn't likely to affect shipyards as they build ships under long-term, business-to-business contracts," a Hyundai Heavy spokesperson said.

On Friday, auto, chipmaker and shipbuilding stocks fell, dragging down the local stock market. The broader KOSPI index lost 1.4 percent.

Samsung Electronics fell 1.4 percent to 56,400 won, with SK hynix declining 0.5 percent to 93,500 won, Hyundai Motor falling 2 percent to 125,000 won, Kia Motors shrinking 2.5 percent to 40,900 won, and Hyundai Heavy dropping 3.2 percent to 273,500 won.

kyongae.choi@yna.co.kr

kdon@yna.co.kr
(END)

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