Korean Won to Gain on Exports, Samsung, SK Energy Say

By Kim Kyoungwha

July 4 (Bloomberg) -- South Korea's won may gain in the second half of the year, recovering from an 11 percent drop in the first, as rising exports narrow the trade deficit, Samsung Electronics Co., Korean Air Lines Co. and SK Energy Co. said.

Exports typically rise in the final six months of the year as demand increases before the Christmas and New Year holidays, said Chu Woo Sik, head of investor relations at Samsung, the nation's largest exporter. The won may gain 5 percent by the end of the 2008, said Bae Yong Chul, head of the foreign exchange department at SK Energy, South Korea's biggest oil refiner.

``The trade deficit will get better toward the end of the year,'' Bae said in an interview. ``Soaring crude prices are taking a toll on the exchange rate'' at the moment, he said.

Corporate treasurers join Bank of Korea Deputy Governor Rhee Gwang-Ju, who said this week the currency will stop falling as the balance of payments improves. The three companies, with a combined market value of $102 billion, said their forecasts may be threatened if oil prices continue to climb beyond $145 a barrel, cooling global demand for Korea's exports and making fuel imports more expensive.

The won fell 0.4 percent to 1,048.90 versus the dollar as of 10:51 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The Korean currency was Asia's second-biggest loser in the first half, lagging behind the Thai baht's 12 percent slide. SK Energy and Korean Air, the nation's biggest airline, forecast the won will climb beyond 1,000 per dollar by year-end, similar to the 995 median estimate of 24 strategists surveyed by Bloomberg News.

`Seasonal Impact'

The current-account deficit, the broadest measure of trade, will shrink to $2.5 billion in the second half from $6.5 billion in the first, the central bank's Rhee said.

``Obviously there's a seasonal impact kicking in, but that's being greatly offset this year by the slowdowns in demand especially from markets in the U.S. and Europe,'' Samsung's Chu said. ``We envisage the seasonal pickup in the second half to be not as conspicuous. We are bracing for difficult times.''

A weaker won boosts the local currency value of Samsung Electronics' overseas sales of flat-screen televisions and mobile phones.

`A Lot Weaker'

``We should find the won stabilizing,'' Chu said, unless oil prices climb further. ``We were bracing for an exchange rate of 900. It turned out a lot weaker. In the short term, it helps our bottom line.''

The won won't rise until the final three months when the world's largest economy recovers, the U.S. presidential election ends and oil prices stabilize, said Korean Air's senior manager of investor relations' Lee Sung Jae.

The won's loss has been curbed on speculation the government, in a fight against the fastest inflation in a decade, is buying the currency. The won gained 1.2 percent on July 2 after earlier falling as much as 1 percent.

The nation's top policy makers including Bank of Korea Governor Lee Seong Tae held a meeting yesterday to discuss how to curb the won's decline, MoneyToday reported.

South Korea bought about $7 billion worth of won since the end of May to boost the value of the currency and slow inflation, JoongAng Ilbo newspaper reported this week.

Increased Hedging

Korean Air's 2008 business plans were based on an average exchange rate of 920 won and the company now expects operating profits to decline because of a weaker currency and soaring crude prices. The company increased hedging to protect against foreign-exchange losses to 20 percent of foreign currency transactions from 15 percent in 2007, Lee said.

Companies' use of derivatives to lock in exchange rates fueled an 8 percent rise in forward transactions in the first quarter after a 50 percent jump in 2007, central bank data shows.

``We have around $2.2 billion worth of foreign currency transactions every year,'' Lee said. ``We are increasingly using various hedging techniques and products.''

SK Energy also increased hedging this year, Bae said. He declined to disclose the amount.

South Korean corporate transactions in currency forwards jumped to $1.9 billion a day in the first quarter from $1.7 billion in the final three months of 2007, Bank of Korea data showed. Such deals rose to $1.4 billion a day in 2007 from $940 million in 2006.

Forwards are agreements in which assets are bought and sold at current prices for future delivery.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;