As infection symptoms of the new strain of coronavirus quickly spread, South Korean industries are reeling.
As major local factories in China will be close until the 9th, there will be a setback to supply of components and finished products. While some companies have to stop producing new home appliances temporarily, some automotive manufacturers may have to stop their production lines completely. If the situation does not settle down even after the 9th when Chinese New Year holiday will end, South Korean industries may be placed in a serious state of emergency.
Home appliance manufacturer that manufacturers air conditioners, refrigerators, and washing machines has stopped operating its factory in Tianjin. Although Tianjin, which is located on the north side of China, is significantly far away from Wuhan, the manufacturer has stopped the operation of its factory due to Chinese Government’s guidelines.
Another home appliance manufacturer has stopped operating its factory in Shenzhen that is located at the south side of China. The manufacturer, which mostly manufacturers home appliances used during a summer, has huge concerns as it highly depends on OEM (Original Equipment Manufacturing). “We have no inventory of new products that will be released this year.” said CEO of the manufacturer. “We are concerned that we may not be able to sell these new products at the beginning of this year when timing is important for seasonal home appliances.”
The home appliance industry is also concerned about “refrigerant wave”. Unlike major companies, small to medium companies bring in compressors that go into refrigerators and air conditioners mostly from China. Compressor is a key component that pressurizes refrigerant through high pressure. Even if compressors can be brought in from China, it may take more time to bring them in as they need go through areas that are quarantined.
“Small to medium companies use Chinese compressors a lot due to their price.” said a representative for the industry. “However, if supply of Chinese components is delayed, there may be a setback to domestic production of refrigerators and air conditioners.”
Samsung Electronics and LG Electronics recently announced through their distribution networks that supply of few laptop models that are produced from China will be around two weeks late compared to a normal year. This means that laptops that are received in two weeks after an order will now be received in four weeks. Samsung Electronics and LG Electronics have laptop manufacturing plants in Suzhou and Nanjing respectively. As supply of their laptops has been delayed during an ‘academy season’ when a new semester starts, their distribution networks are now in trouble.
Automotive manufacturers are faced with a situation where they may have to completely shut down their factories. Ssangyong will stop operating its factory in Pyeongtaek for a week starting from the 4th as supply of “wiring harness”, which is an integrated wiring device of a car, has been cut off and as its inventory has been used up. It is heard that Hyundai Motor Company and Kia Motors also only have a week worth of inventories of wiring harness. Although GM Korea and Renault Samsung were able to avoid suspending their factories due to their global supply networks, it will be difficult to maintain the operation of their factories if the situation prolongs.
South Korea’s semiconductor and display industries are concerned about a sudden drop in their production capacities. If the situation prolongs, they may have to stop operating their production lines in China due to a setback in supply and demand of Chinese materials and components. Some are concerned about the situation impacting South Korean semiconductor and display manufacturers’ sales in the first half as SCM (Supply Chain Management) system will be affected if there is an issue with supply and demand of Chinese raw materials.
“For now, the situation will not cause a huge setback to our current production plans.” said a representative for the display industry. “However, it will affect our SCM and sales if it prolongs.”
South Korean industries are seeing this coming Sunday as the turning point. Although Chinese New Year holiday ended on the 3rd and families have started to go back to their own homes, operations in major cities will be on halt until the 9th according to Chinese Government’s guidelines. Although operation of factories will be resumed on the 10th, speed of how quickly the new strain of coronavirus is spreading has to be monitored. If operation of factories in China is put on halt until later date, the impact on South Korean industries will be significant.
“If the situation does not settle down early, it will affect our back-end industries.” said Vice Prime Minister and Minister Hong Nam-ki of Ministry of Economy and Finance during a meeting of ministers.
South Korean Government is working on providing emergency support for South Korean industries. Ministry of Trade, Industry and Energy held an inspection meeting with Minister Sung Yoon-mo as the chair and it has put out measures such as providing $335 million (400 billion KRW) to export companies to China.
“Although we may be able to withstand until the 9th by exhausting our current inventories, amount of damage will grow if the situation continues.” said a representative for the electronics industry. “The government and industries need to come up with measures together to prepare for the worst.”
Staff Reporter Kim, Yongjoo | kyj@etnews.com & Staff Reporter Park, Taejoon | gaius@etnews.com & Staff Reporter Yoon, Heeseok | pioneer@etnews.com