Hard to accept that while one nation grapples with the world’s costliest natural disaster, another one is filled with hopes of unforeseen growth? Well, such are the economics involved in the start of building the new Japan-Korea equation in the world economy.
Steel stocks of Japan’s neighbor and chief competitor in steel-manufacturing, Korea, continued to rise with the prospect of less competition and increased demand when the Japanese start rebuilding.
The country’s shipbuilding industry on the other hand, which has, since 2000, produced 90% of the world’s liquefied natural gas tankers, is likely to be fuelled increased demands for LNG brought on as a Fukushima disaster backlash.
Korea’s Steel Industry
Steel-makers from the also-ran of the East-Asian steel industry, Korea, boasted a 10% market share as opposed to Japan’s 30% before the March 11 earthquake and tsunami wrecked havoc in Japan. The greatly reduced competition and the prospects of increased demand once rebuilding begins, has meant significant jumps for Korea’s steel giants.
The world's third-largest steel maker, Posco, was not doing very well at all in 2010 when its shares dropped down 21% in response to high raw-material prices, and they were not expecting much better for 2011 with Chinese growth weakening. Post Japan-quake, Posco's share prices jumped 10% in ten days of trading.
Hyundai Steel, Korea's No. 2 producer after Posco, posted an even higher gain, going up 11%.
With Korea being one of Japan's toughest commercial rivals, a number of opportunities were created for them by the power outages, transportation blockages, and other manufacturing problems that have resulted from the Mar. 11 disaster.
And its probably because these problems are likely to continue for "at least another six to nine months," as per estimates of Susumu Kato, chief economist in Tokyo with Credit Agricole CIB and CLSA, that many investors are turning to Korean companies such as oil refiner SK innovation, Honam Petrochemical and Ssangyong Cement Industrial.
Japan’s share in Asia’s supply chain has been diminishing over the years, and while some Korean companies still depend on Japanese suppliers, market speculations say that the logistical problems brought on by the March 11 quake are likely to intensify the trend.
Ship-building in Korea
Six of the world’s largest shipyards belong to Korea. These were doing well even before the earthquake and tsunami in Japan, with 90% of the world’s LNG tankers having been produced by Korea’s shipbuilders.
Forecasts by the Korean government earlier this year estimated a 75% increase in global orders for LNG tankers with speculation that these six leading Korean shipyards alone would see a 33% increase in orders for all ships this year.
But post-Fukushima, these figures look very different. For the better.
It is very likely that the disasters at the reactors at the Fukushima Nuclear Station will culminate into hostility towards nuclear power, which in turn would mean an increase in the use of LNG as well as Korea’s shipyards.
If this happens, with not enough tankers anywhere else to handle the potential demand that would ensue, Mar. 11 will become "a landmark event for the shipbuilding industry" , says Lee Sokje of Mirae Asset Securities in Seoul.