Defense and shipbuilding win back-to-back orders, EV demand rises… boom expected
Refining and home appliances post strong Q1 results, but may be a mirage… emergency management begins
As the war in the Middle East drags on, South Korea’s industries are seeing increasingly divergent fortunes depending on the sector.
[Insight Korea = IncoBot]
With the conflict in the Middle East showing signs of becoming protracted even amid ceasefire talks, stark contrasts are emerging across South Korea’s industrial landscape. Defense and shipbuilding companies are enjoying a windfall, posting record orders as Middle Eastern countries ramp up weapons purchases and strengthen energy security policies. Airlines, by contrast, have been unable to withstand the burden of high oil prices and a weak won, with some turning to unpaid leave. Even refiners and home appliance makers, which are expected to deliver first-quarter earnings surprises, appear cautious as they brace for a possible earnings cliff in the second half.
Defense, shipbuilding and used EVs: a paradoxical boom created by war and high oil prices
According to business circles on the 14th, demand for air defense systems in the Middle East has surged amid tensions between Iran and Israel, fueling a flood of interest in K-defense products. The momentum accelerated after it was reported that Cheongung-II, the medium-range surface-to-air missile system deployed in the UAE, recently achieved a 96% interception rate against missiles and drones in real combat. Saudi Arabia and the UAE are said to have urgently requested early delivery of existing orders as well as additional supplies. The industry estimates that South Korea’s defense exports could reach 39 trillion won in 2026, up 200% from a year earlier.
The shipbuilding industry is also feeling the tailwind. As energy security grows in importance, delayed orders for high-value vessels such as LNG carriers, LPG carriers and petrochemical product carriers, or PC ships, are beginning to flow again. HD Korea Shipbuilding & Offshore Engineering won an order worth 1.5 trillion won for four LNG carriers in March, then added another contract early this month for 14 ships worth 1.9 trillion won, including two LNG carriers. Analysts say South Korea’s three major shipbuilders have entered a super cycle in which they are selectively taking on high-value orders to boost profitability.
The automotive market has also seen an unusual boom in used electric vehicles. With gasoline prices topping 2,000 won per liter, consumers feeling the burden of fuel costs have turned to used EVs instead. According to KaizU Data Research Institute, used EV transactions in the first quarter rose 48.7% year-on-year to 16,107 units. In March, EVs accounted for 26.0% of newly registered vehicles, more than double the 12.2% recorded a year earlier.
Airlines cut flights and turn to unpaid leave as jet fuel prices soar
The airline industry, however, is seeing profitability deteriorate sharply under the weight of surging fuel costs. The price of aviation fuel, which accounts for about 30% of operating expenses, has moved beyond a critical threshold. In the first week of April, jet fuel prices in Singapore’s spot market, or MOPS, stood at $228.21 per barrel, about 2.5 times higher than the pre-war level of $92.67.
That pressure is now showing up in route adjustments and workforce reductions. Last month, the number of international flight cancellations by South Korea’s nine low-cost carriers reached 604, up 26.1% from a month earlier. Jin Air cut mid-haul flights by 27.7%, reducing the number of operations from 1,168 to 844, while Korean Air’s long-haul cancellation rate rose from 0.2% before the conflict to 3.9% recently. T’way Air is currently accepting applications for unpaid leave from cabin crew for May and June.
Refiners and appliance makers tighten belts despite strong results
Refiners are also unable to fully celebrate, even though they are expected to post strong first-quarter earnings. SK Innovation’s first-quarter operating profit is forecast at 824.4 billion won based on market consensus compiled by FnGuide, while Korea Investment & Securities sees it reaching as high as 1.8 trillion won. S-Oil is expected to post a profit ranging from 579.9 billion won to 1.1 trillion won.
Much of that, however, is attributable to the so-called lagging effect, in which crude oil secured when prices were low rises in value as oil prices climb. Industry officials warn that this accounting illusion, driven by inventory valuation gains, could lead to a sharp earnings drop beginning in the second quarter. In fact, the four major refiners are expected to incur combined losses of 1.0219 trillion won due to the government’s price cap policy. With demand softening under high oil prices and refining margins declining in earnest, the possibility of losses in the second half cannot be ruled out.
LG Electronics also posted record first-quarter results, with revenue of 23.7 trillion won and operating profit of 1.6 trillion won, but entered emergency management mode in early April. The move was intended to prepare for a sharp rise in maritime logistics costs and raw material prices stemming from the Middle East crisis, which are expected to be fully reflected starting in the second quarter. LG Electronics has adopted economy-class travel as the rule for overseas trips by executives and cut expenses for organizational heads by 50%, launching an aggressive cost-cutting process.
A business official said, “Unlike previous crises driven by shrinking demand, the current supply chain risk is a structural crisis in which higher costs directly eat into earnings,” adding, “Airlines and refiners, which are especially sensitive to oil prices and exchange rates, will face a real test of profitability in the second half, when the base effect from the first quarter disappears.”
※This article was planned and reviewed by a reporter and written by AI reporter IncoBot.
-This article was translated by ChatGPT. (이 기사는 챗GPT가 번역했습니다.)
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