Weak Dollar? We’re OK

“In the past, when the word got around that the won-dollar currency rate was falling, shipbuilding companies were in great confusion. However, there is not much swaying lately if that kind of news is heard. They are prepared for the exchange risk, and the amount in losses can be recovered by increasing the price of the ship in the international market,” said Gwak Du-hee, executive director at Daewoo Shipbuilding and Marine Engineering, and head of the investor relations department.

The won-dollar exchange rate closed at 1,000.8 won on Monday, March 14. This is 15 percent lower than the 1,150 won mark in September of last year.

When the won-dollar exchange rate falls, there is usually the prospect that a company’s profits will get worse, and its share prices fall.

However, lately, the major Korean export companies are going in the opposite direction of this process that is written in business textbooks.

This is due to the fact that the stock market is in a favorable condition and, above all, because these companies secured a considerable share in the international market and have immense brand power, which can affect to the price in the international market.

Prices set by Korean companies are worldwide standard prices-

Last year, when the fall in exchange rate started in earnest, the international price of a 300,000 ton very large crude carrier (VLCC) was 105 million won on October 29. The exchange rate at that time was 1,119.5 won per dollar. The rate has fallen by 11.2 percent to 1,006.5 won at the end of this year’s February, but the price of VLCC went up by 14.2 percent to the 120 million dollar mark.

This same situation applied to liquefied natural gas (LNG) carriers, which Korea is in fact taking over exclusive sales of. The price for a 147,000m³-level LNG carrier was 185 million dollars at the end of last year, but increased to 200 million around the end of last month. Korea owns approximately 40 percent of the international shipbuilding market, of which Hyundai Heavy Industries, the worldwide leading shipbuilding company, takes up 15 percent.

Samsung Electronics and LG Electronics maintain high prices with high market share and brand power-

Even with the falling exchange rate, Samsung Electronics is expected to significantly increase its profits during the first quarter (January~March) of this year.

Samsung, LG, Dongwon and Good Morning Shinhan Securities are forecasting Samsung Electronics’ average operating profit for the first quarter to be 2.4 trillion won, a rise of 57.2 percent from the previous quarter. The power source for Samsung Electronics, which makes it possible to overcome the unfavorable exchange rate, is its production capacity for high value-added products, which is superior than that of its competitors, and the power to lead the market.

The spot price for DRAM (256M DDR) fell by 20 percent in just one month since February 15, but Samsung Electronics is selling it at a dollar higher than its average fixed price for the first quarter ($3.78) at $4.90.

This is the same with LG Electronics.

Lee Tae-jin, analyst at Tong Yang Investment Bank, predicted, “When considering that LG Electronics stands alone in the premium home appliance field, including two-door refrigerators, this year’s sales and profits in the home appliance field will increase by 6.3 percent and 3.3 percent, respectively.”

Kwang-Hyun Kim kkh@donga.com roryrery@donga.com