Imf Stand Upsets S Korea Metal Industry
South Korea's base metal industry is worrying about the pains that come along with the International Monetary Fund's (IMF) record-breaking bail-out package for the country, traders said yesterday. They said, expected austerity measures to be adopted by the government would lead to slowing metal product consumption next year by state-run corporations as well as private business groups.
"We expect next year's business outlook to be gloomy due to conditions for receiving the international aid," a trader with a local cable maker said,
The trader said the government's austerity steps may force the biggest local end-users like Korea Electric Power Corp and the country's state-run Korea Telecom Corp to cut by about 20 per cent their consumption in 1998. In the domestic aluminium market, traders said contract talks on aluminium imports for first quarter shipment have been delayed due to sluggish domestic demand and uncertainty over next year's business.
"Foreign suppliers are offering aluminium premiums for first quarter shipment at $78 a tonne over the London Metal Exchange(LME) cash prices, but no one wants to make deals," said a trader with a major trading house. This compared to the premium of $82-$83 a tonne for fourth quarter shipments, he said.
The trader said local aluminium deals for spot delivery have also dried up as importers have already been hit by a credit squeeze as local banks are reluctant to guarantee letters of credit.
The economic trouble has also forced metal importers to ask foreign suppliers to delay their fourth quarter shipments and to continue shipping stocks overseas, they said. Domestic aluminium selling prices rose to about 2,030 won per kg from 1,900 won over the past two weeks due to the currency's sharp decline against the dollar.
Traders said domestic base metal consumers were preferring to buy the metal from local producers rather than to import from overseas due to the won's stiff depreciation against the dollar.
Local producers like LG Metals Corp and Korea Zinc normally sell their products on the domestic market at a monthly fixed price which reflects an average LME cash prices and foreign exchange rates of the previous month.