[Click eStock] "Korea Exports Benefit from G2 Replacement Demand"

NH Investment & Securities stated on the 2nd that December exports rebounded (+6.6%) due to the year-end shopping season and G2 replacement demand, but January exports are expected to decline by 8% in headline growth rate due to 3 fewer working days caused by the early Lunar New Year holiday. They forecast a 3% increase in exports for the first quarter.

Korea's exports in December (61.4 billion USD) increased by 6.6% year-on-year. Imports in December (54.9 billion USD) rose by 3.3%, resulting in a trade surplus of 6.5 billion USD. This is interpreted as benefiting from the year-end shopping season, stockpiling demand before the Trump tariffs, and replacement demand due to China's equipment renewal policy.

Semiconductors (32%) slowed down due to the price decline of general-purpose memory (DDR4, NAND). On the other hand, SSD exports to the US, European Union (EU), and ASEAN, driven by ongoing AI data center investments, supported computer exports. Wireless communication and home appliance exports turned to growth due to short-term consumption expansion from G2 year-end shopping season discount events and concerns over future import tariff imposition.

Cyclical sectors (refining -12%, general machinery -7%, chemicals +2%, steel +3%) were sluggish. Steel and chemical exports increased due to ASEAN infrastructure investments and EU production facility investments, but general machinery exports declined due to delays in US eco-friendly facility investments.

Among consumer goods, cosmetics, agricultural products, and daily necessities maintained solid performance riding the Korean Wave, but pharmaceuticals turned to a decline due to intensified competition. Automobiles decreased for the second consecutive month due to reduced operating rates of finished car manufacturers, while auto parts increased thanks to local production expansion in North America and Latin America.

The first quarter export growth rate for Korea is forecasted at 3%. This is interpreted as ongoing replacement demand in the US and China. Due to expected price increases from the Trump tariffs, more US consumers consider it optimal to purchase goods before Trump's inauguration. Durable goods replacement demand and long-term storage essential goods demand in the US are expected to continue into early this year. In China, the equipment renewal policy expanded sales of automobiles, home appliances, and furniture. The expansion of durable goods replacement demand in the G2 and the won-dollar exchange rate level around 1,400 won are factors boosting Korean export companies' fourth-quarter sales.

January is expected to see a headline export growth rate of -8% due to 3 fewer working days from the early Lunar New Year holiday, with first-quarter Korean exports projected to grow by 3%. The introduction of tariffs by the Trump administration on the three countries (Canada, Mexico, China) and the possibility of universal tariffs are the biggest downside risks for Korean exports in the first quarter, but a rebound in Korean exports is expected from the second quarter when the effects of US interest rate cuts become visible.