Strike poses risk to South Korea’s economy as $1.2 billion disrupted

The risk to South Korea’s economy and global supply chains is growing as a nationwide trucker strike widens, curbing output at top steelmaker Posco and causing increasing damage to the petrochemicals sector.

The Ministry of Trade, Industry and Energy estimates that the auto, petrochemical, steel and other key industries have seen production disruptions worth about $1.2 billion.

It said in a statement Monday that the impact from the stoppage will be more severe this week because many of the companies have reached storage limits for their products.

Posco Holdings curbed production at some of its factories, while the petrochemical industry called for a halt to the strike, saying the “damage is snowballing” and will impact the national economy.

Companies most affected by the strike slumped in Seoul on Monday.

Hyundai Motor shares fell 5.2%, the most since February 2021. Posco lost 3.9%. Petrochemical company Hanwha dropped 3.9%, while LG Chem slipped 3.6%.

The strike is in its seventh day as truckers in the nation protest the removal of a minimum wage scheme amid soaring fuel prices.

Talks over the weekend between the union and government officials failed to make progress.

Deliveries of automobiles, fuels, steel and materials for semiconductor chips have been suspended or delayed, exacerbating disruptions to global supply chains after covid-19 lockdowns in China and Russia’s invasion of Ukraine.

A lengthy dispute is likely to have ripple effects across the globe, as South Korea is the largest exporter of memory chips and is home to some of the world’s biggest car companies.

The supply chain snarls of recent months have also contributed to the accelerating prices worldwide that have prompted central banks, including the Bank of Korea, to raise interest rates.

The daily volume of container boxes transported to and from the nation’s 12 ports dropped 68% on Monday compared with the average for May, according to data from the Ministry of Land, Infrastructure and Transport.

Inbound and outbound volumes at Busan, the world’s seventh-busiest port, were less than half their usual amount.

President Yoon Suk Yeol has asked his senior secretaries to prepare various measures to limit the damage to industries.

South Korea’s military is operating some 100 cargo trucks to keep containers moving in and out of major ports, according to the Ministry of Oceans and Fisheries.

The auto industry is the biggest potential victim of the strike, and delays may weigh on economic growth, said Cho Chuel, an analyst at the Korea Institute for Industrial Economics & Trade.

Hyundai Motor Group said Friday it experienced partial production disruptions at its Ulsan plants, with Chosun Ilbo reporting that about 50% of production at Hyundai’s plant was halted.

“Inflation may also get worse with fewer supplies available,” Cho said. Still, he added, it’s too early to tell how large the strike’s damage to the economy will be.

Steel, cement and petrochemicals are among the hardest hit industries so far.

The Korea Petrochemical Industry Association said daily deliveries are only 10% of the average level.

Output by cement companies has fallen significantly and production by some ready-mixed concrete companies has been suspended, according to the transport ministry.

Hanwha Totalenergies Petrochemical and LG Chem warned that they would most likely have to at least partly suspend production at some plants if the strike continues.

Warehouse space for storing solids is limited, while storage tanks for gas and liquid products are running out, the two companies said.

Posco halted output at its four wire-rod factories and a cold-rolled steel plant Monday after the strike exhausted warehouse space, it said in response to a Bloomberg query.

The daily output of wire rod will be curbed by about 7,500 tons, and cold-rolled steel by 4,500 tons, the firm said.

While Posco is working on minimizing the impact from the strike, there’s a possibility it may have to further reduce production, according to a spokeswoman.

The company is currently piling up products at parking lots and roads, it said.

The strike is one of the first economic challenges faced by South Korea’s newly elected president.

If it continues, Yoon’s desire to have less state intervention in labor disputes will be put to the test.

“Yoon has declared that unions and employers should freely negotiate and the government will continue to respect that,” said Hong Sung-gul, professor at Kookmin University’s Department of Public Administration.

Still, Yoon is more likely than his predecessor Moon Jae-in to crack down on and seek damages for illegal protests by labor unions should negotiations fail or the strikes pose serious harm to the economy, Hong added.