Aurelia Butler

Outside the town of Yongin, 40 kilometres south of Seoul, an army of diggers is preparing for what South Korea’s president has described as a global “semiconductor war”.The diggers are moving 40,000 cubic metres of earth a day, cutting a mountain in half as they lay the foundations for a new cluster of chipmaking facilities that will include the world’s largest three-storey fabrication plant.The 1,000-acre site, a $91bn investment by chipmaker SK Hynix, will itself only be one part of a $471bn “mega cluster” at Yongin that will include an investment of 300tn won ($220bn) by Samsung Electronics. The development is being overseen by the government amid growing anxiety that the country’s leading export industry will be usurped by rivals across Asia and the west.“We will provide full support, together with SK Hynix, to ensure that our companies won’t fall behind in the global chip cluster race,” South Korea’s industry minister Ahn Duk-geun told SK Hynix executives during a meeting at the Yongin site last month.Most industry experts agree the investments at Yongin are required for South Korean chipmakers to maintain their technological lead in cutting edge memory chips, as well as to meet booming future demand for AI-related hardware.But economists worry that the government’s determination to double down on South Korea’s traditional growth drivers of manufacturing and large conglomerates betrays an unwillingness or inability to reform a model that is showing signs of running out of steam.Having grown at an average of 6.4 per cent between 1970 and 2022, the Bank of Korea warned last year that annual growth is on course to slow to an average of 2.1 per cent in the 2020s, 0.6 per cent in the 2030s, and to start to shrink by 0.1 per cent a year by the 2040s.Pillars of the old model, such as cheap energy and labour, are creaking. Kepco, the state-owned energy monopoly that provides Korean manufacturers with heavily subsidised industrial tariffs, has amassed liabilities of $150bn. Of the other 37 OECD member countries, only Greece, Chile, Mexico and Colombia have lower workforce productivity.Park Sangin, professor of economics at the graduate school of public administration at Seoul National University, notes that South Korea’s weakness in developing new “underlying technologies” — as opposed to its strength in commercialising technologies like chips and lithium-ion batteries invented in the US and Japan respectively — is being exposed as Chinese rivals close the innovation gap.Diggers are moving 40,000 cubic metres of earth a day as they lay the foundations for a new cluster of chipmaking facilities in Yongin More

The one-year loan prime rate (LPR) was kept at 3.45%, while the five-year LPR was unchanged at 3.95%.In a Reuters survey of 30 market participants conducted last week, all respondents expected both rates to stay unchanged.Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. More

The PBOC kept its one-year LPR at 3.45%, while the five-year LPR, which is used to set mortgage rates, was left at 3.95%. Both rates were at record lows, as the Chinese government sought to shore up economic growth by keeping local monetary conditions as loose as possible. To this end, the PBOC had cut the 5-year LPR in February to help support the property market. The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending rates in the country.China’s economy picked up some pace in the first quarter of 2024, with recent gross domestic product data showing slightly better-than-expected growth. The economy also remained on track to meet the government’s 5% annual growth target. A bulk of this strength came from increased capital spending and investment by the government. But a deflationary trend persisted, while consumer spending also remained weak as a property market crisis deepened, and as global demand for Chinese exports remained laggard.This kept investors widely expecting more LPR cuts by the PBOC later this year, especially as economic indicators for March already showed some cooling in growth. But just how much the PBOC will cut interest rates remains to be seen, given that Beijing has also shown increasing discomfort with recent weakness in the yuan. More

SINGAPORE (Reuters) – The euro and yen were relatively steady in early Asian trading on Monday and the U.S. dollar stayed near its highs after last week’s hectic policy and geopolitical developments. Eyes are on the yen this week, with the Bank of Japan’s (BOJ) Friday policy review the notable item on the economic calendar. The yen hit 154.70 per dollar, not far from last week’s 34-year low of 154.79 and close enough to the 155-level that is next on traders’ alerts for possible intervention by Japanese authorities. The dollar’s trade-weighted index was above 106, but off five-month highs it struck last week after comments from Federal Reserve officials and a run of hotter-than-expected inflation data forced a paring back of rate cut expectations.A cooling in Middle East tensions, which had driven the dollar, gold and crude oil prices sharply higher on Friday and battered stock markets, also helped temper volatility. Tehran downplayed Israel’s retaliatory drone strike against Iran, in what appeared to be a move aimed at averting regional escalation.”There will be a focus on the BOJ meeting, but it is too soon for them to alter policy, and the market gives a change in rates no chance at all,” said Chris Weston, head of research at Pepperstone.Referring to Japanese rates swaps, Weston said he sees “no change priced for this meeting” but a hike of 10 basis points priced by July and 25 bps priced by December.The strong dollar prevailed at last week’s International Monetary Fund/World Bank spring meetings in Washington too, and the United States, Japan and South Korea issued a rare joint statement on the issue. Speaking after the Group of 20 (G20) finance leaders’ meeting in Washington, Bank of Japan Governor Kazuo Ueda said the Japanese central bank may raise interest rates again if the yen’s declines significantly push up inflation, highlighting the dilemma the weak currency has become for policymakers.The yen has been one of the biggest losers against the dollar this year, with losses mounting to 9%. Yet, while the rethink on Fed easing has led to a general repricing of global rate cut timelines, expectations for the European Central Bank (ECB) and Bank of England (BoE) to start cutting by mid-year are still intact.ECB policymaker Madis Muller said on Friday the central bank could cut interest rates “a few more” times by the end of the year after a first move in June if inflation behaves as expected, similar to what ECB President Christine Lagarde had hinted last week, while not pre-committing to any rate path. The ECB’s Robert Holzmann, however, said the ECB probably will not cut rates this year as much as planned if the Fed does not move.BoE Governor Andrew Bailey and Deputy Governor Dave Ramsden alluded last week to Britain’s inflation slowing as expected. Sterling hit $1.2367, a mid-November low, on Friday. It was last at $1.2383.Analysts do not see too much room for U.S. Treasury yields to rise further, given the light economic data calendar for the rest of the month and how far they have already risen as investors reprice Fed expectations. Two-year notes have seen yields climb 38 basis points this month to current five-month high levels around 5.0070%. Bitcoin was last up 1% at $64,832. The world’s largest cryptocurrency completed its “halving” on the weekend, a phenomenon that happens roughly every four years and aims to reduce the rate at which bitcoins are created.Currency bid prices at 0030 GMTDescription RIC Last U.S. Close Pct Previous Change Session Euro/Dollar $1.0663 $1.0657 +0.06% Dollar/Yen 154.6550 154.6000 +0.03% Euro/Yen 164.92 164.78 +0.08% Dollar/Swiss 0.9106 0.9103 +0.04% Sterling/Dollar 1.2381 1.2370 +0.12% Dollar/Canadian 1.3728 1.3750 -0.15% Aussie/Dollar 0.6442 0.6419 +0.36% NZ Dollar/Dollar 0.5907 0.5889 +0.32% All spotsTokyo spotsEurope spots Volatilities Tokyo Forex market info from BOJ More

BEIJING/SINGAPORE (Reuters) -U.S. President Joe Biden’s push to triple tariffs on Chinese steel imports strikes a mostly symbolic blow on an industry facing bigger concerns over faltering local demand and threats of even stronger blowback against China’s surging exports. Steel consumption in the world’s second-largest economy is poised to shrink again this year as a protracted property crisis has yet to find bottom and as infrastructure demand growth slows after 12 indebted regions were ordered to halt certain projects.The state-backed China Metallurgical Industry Planning and Research Institute (MPI) forecasts a 1.7% drop in China’s steel demand this year, following a 3.3% decline in 2023. While China’s steel exports last year climbed more than a third to their highest since 2016 at 90.26 million metric tons, about 9% of its total crude steel output, just 598,000 tons of the shipments went to the United States. That was down 8.2% from volumes shipped to the U.S. the previous year and less than 1% of total Chinese steel exports worth $85 billion in 2023. China, the world’s biggest producer and exporter of steel, is just the seventh-largest shipper of steel to the U.S., softening the blow of Biden’s proposal to raise to 25% the tariffs imposed by his predecessor Donald Trump on certain steel and aluminium products. “We do not think there will be any big impact as the main destinations for China’s steel exports are Japan, South Korea, and Middle East countries,” said an analyst at a China-based steel trader who declined to be named as he was not authorised to speak with media. Spurred by low local prices, Chinese steelmakers and traders are on track to match or surpass last year’s exports, with domestic information provider Lange Steel lifting its forecast to more than 100 million tons for 2024 after March shipments beat expectations. China’s cheap steel products are also stoking complaints from beyond the United States. Late last year, India imposed anti-dumping duties on some Chinese steel imports while Mexico announced a nearly 80% tariff. Thailand has launched a probe into Chinese rolled steel imports, and Brazilian steelmakers are urging their government to impose a 25% tariff on imports. A report from a Chinese state-backed research agency identified a total of 112 statements from countries regarding anti-dumping and anti-subsidy moves on Chinese steel products in 2023, a rise of around 20 from 2022. “We are expecting more trade frictions this year,” said David Cachot, research director at consultancy Wood Mackenzie. DOMESTIC DOLDRUMSBeijing’s latest support for the sector, a plan to back equipment upgrades in the industrial and farm sectors and speed consumers’ replacement of cars and home appliances, is unlikely to fully offset reduced steel consumption from the property sector. Consultancy CRU Group forecast that an additional 8 million to 9 million tons of steel demand will be created over the next four years thanks to the policy. In comparison, the state metallurgical institute expects construction demand to decline 20 million tons, or 4%, this year. Some analysts said they expect infrastructure-led steel consumption this year to grow just 1% to 2%, from previous expectations of 7% to 8%, after Beijing’s demand that a dozen regional governments delay or halt some state-funded infrastructure projects prompted other regions to follow suit. In recent years, Beijing has imposed caps on steel production both to reduce supply and curb carbon emissions, and industry watchers and insiders say further output cuts are needed to curtail overcapacity. “The steel industry faces a conspicuous contradiction -strong supply capability and dwindling demand,” Luo Tiejun, vice chairman of state-backed China Iron and Steel Association (CISA), told an industry event this week in southern China. “The key to address this is that leading producers take the lead in reining in production pace based on demand,” Luo said, according to the group’s WeChat account. EXPORTS TO THE RESCUE?In March, Chinese steel exports climbed to 9.89 million tons, the highest for a month since July 2016, bringing the first-quarter total to 25.8 millions even as overall exports in the world’s second-largest economy contracted sharply. Valued at $20.3 billion, China’s first quarter steel exports averaged $789 per ton, far above local prices averaging 4,145 yuan ($572.30), data from customs and consultancy Mysteel show.A weaker-for-longer yuan against the U.S. dollar, partly due to delayed U.S. Federal Reserve interest rate cuts, is also expected to facilitate steel exports.But exports are susceptible to uncertainty stemming not only from trade frictions but also growing overseas supply and the potential for Beijing to mandate output limits. To be sure, global steel demand is expected to rise 1.7% to 1.793 billion tons this year, the World Steel Association said.”Although some countries are building their own capacity to fulfil the increase in local demand, this cannot meet the demand quickly enough, which means that there is still room for steel from China,” said Kevin Bai, a Beijing-based analyst at CRU Group. ($1 = 7.2426 yuan) More

BEIJING/FRANKFURT (Reuters) -Tesla has cut prices in a number of its major markets, including China and Germany, following price cuts in the United States, as it grapples with falling sales and an intensifying price war for electric vehicles (EVs), especially against Chinese EVs.The price cuts come after Tesla (NASDAQ:TSLA), led by its billionaire CEO Elon Musk, reported this month that its global vehicle deliveries in the first quarter fell for the first time in nearly four years.”Tesla prices must change frequently in order to match production with demand,” Musk posted on X on Sunday. Tesla, the EV market leader, ignited an EV price war over a year ago by aggressively cutting prices at the expense of profit margins. Tesla cut the starting price of the revamped Model 3 in China by 14,000 yuan ($1,930) to 231,900 yuan ($32,000), its official website showed on Sunday.In Germany, the price of the Model 3 rear-wheel-drive was trimmed to 40,990 euros ($43,670.75) from 42,990 euros, where the price had been since February. There were also price cuts in many other countries in Europe, the Middle East and Africa, a Tesla spokesperson said.U.S. prices of the Model Y, Model X and Model S vehicles were cut by $2,000 on Friday. On Saturday Tesla slashed the price of its Full Self-Driving driver assistant software to $8,000 from $12,000 in the United States.Tesla has been slow to refresh its ageing models as high interest rates have sapped consumer appetite for big-ticket items, while rivals in China, the world’s largest auto market, are rolling out cheaper models.This weekend, Musk postponed a planned trip to India, where he was to have met Prime Minister Narendra Modi, citing obligations at Tesla. The trip was to have included the announcement of plans for Tesla to enter the South Asian market, Reuters reported on Saturday.Musk said last Monday that Tesla will lay off more than 10% of its global workforce as the automaker braces for its first annual drop in deliveries. The announcement came after Reuters reported on April 5 that Tesla had scrapped plan to develop its long-awaited affordable EV in favour of robotaxis. Musk posted that “Reuters is lying” after the report, without citing any inaccuracies. He has not spoken further about the model, leaving investors clamouring for clarity. Tesla shares have fallen 40.8% so far this year. ($1 = 7.2403 Chinese yuan renminbi)($1 = 0.9386 euros) More

“Events in the Middle East are casting a shadow over the global economy, compounding the concerns about lingering inflation and weaker growth,” Treasurer Jim Chalmers said in a statement. Chalmers has just finished a trip to Washington where he attended meetings of G20 finance ministers and central bankers.”Given the global challenges coming at us, the May Budget will put a premium on responsibility and an emphasis on security,” he said. “Relieving cost-of-living pressures, repairing our budget and reforming our economy is the best antidote to the kinds of risks that we see escalating around the world.”The treasury will also downgrade its growth forecasts for economies like China, Japan and Britain. It is set to revise up its China 2024 growth forecast slightly to 4.75% but cut the outlook for next year by 0.25 percentage points to 4.25%. Japan’s forecast for this year has also been lowered by 0.25 percentage points to 0.75%. The government is expected to report a budget surplus for the year ended June 30, although the revenue upgrade would be smaller than the year before as commodity prices fell and labour market softened. More

WASHINGTON (Reuters) -South Korea’s central bank chief on Friday said odds for any further policy action to stabilize the slumping Korean won now depend on how events in the Middle East unfold as the bank is ready to take steps to stabilize forex markets if needed.In an interview with Reuters, Bank of Korea Governor Rhee Chang-yong said tensions in the Middle East appeared to plateau after Iran downplayed Israel’s retaliatory drone strikes against it but geopolitical uncertainty still poses risks for the dollar-won market, as well as the country’s inflation. Any Korean action on currency markets “probably depends on how the geopolitical tension in the Middle East evolves. At this moment I think the expectations change about the U.S. monetary policy is already priced in,” Rhee said on the sidelines of the International Monetary Fund and Group of 20 (G20) finance leaders’ meetings this week in Washington.”Everyone is trying to deescalate the tension. I hope that it can be successful. We have to watch.”Rhee’s comments are the latest indication of the increasing frustration felt by policymakers in emerging economies as the strengthening dollar pummels currencies across Asia. A flurry of verbal warnings from South Korean authorities that they were ready for “stabilizing” measures against speculative moves in the dollar-won market in the past week had done little to stop the won’s slide to around a 17-month low, until a joint warning was issued for the first time following a trilateral finance dialogue by the United States, Japan and South Korea on Wednesday. Rhee said although exports from Asia’s fourth-largest economy are “doing a lot better” than expected thanks to robust global demand for South Korean chips, the renewed Middle East tensions could both weigh on exports and push up inflation forecasts as oil prices are rising.The BOK is expected to scrutinize how a weakening won and rising oil prices affect the economy and domestic demand, which will be taken into account as the bank updates its economic forecasts due in May, Rhee said.Rhee also said the bank has large foreign exchange reserves and other tools ready to be deployed to respond to any market volatilities, adding to a series of verbal warnings officials made this week. More