| Korea Times (25 Aug., 2004)
By Cho Hyung-kwon
Staff Reporter
The nation’s trade conditions have deteriorated to their worst level ever in the second quarter as record high international oil prices and rising raw materials prices hiked up import prices, the Bank of Korea (BOK) said Tuesday.
The BOK reported that the net barter terms of the trade index, calculated by dividing the unit value of exports by that of imports, was 84.6 in the second quarter, the lowest level since the central bank introduced in the index in 1988.
The index has declined for the third consecutive quarter from 90.4 in the third quarter last year, 98.7 in the fourth quarter and 86.5 in the first quarter this year.
The index, a barometer of trade profitability, shows how much a country can import based on 100 percent of its exports.
For instance, an index of 85 means that the nation can import 850 won worth of products in exchange for exporting 1,000 won worth of goods. A fall in the index signifies a decline in the real purchasing power.
The BOK said that the worsening trade conditions were mainly due to the rising oil and raw materials prices, which triggered import prices to jump, while export prices rose by less than half of import prices.
Import prices in the second quarter rose 3.8 percent from the first quarter as prices of oil climbed 9.9 percent. Import prices have climbed for the fourth consecutive quarter.
Meanwhile, export prices rose 1.5 percent, also the fourth straight quarterly rise, due to higher steel and petrochemical prices, the BOK said.
The average oil import price jumped to $36.11 a barrel in June, the highest mark since November of 1981, and has climbed for eight straight months since, recording $27.69 a barrel in October of last year.
The trade conditions are expected to worsen in the coming months as the terms of trade index stalls oil prices by two to three months.
On Aug. 19, the West Texas Intermediate (WTI) crude oil for September delivery closed at $48.7 a barrel on the New York Mercantile Exchange, the highest close since oil futures were first traded in 1983.
Prices rose to as high as $49.4 a barrel in after-hours electronic trading on Aug. 20, but prices for October delivery have declined this week to close at $46.05 a barrel on Monday.
Samsung Economic Research Institute said recently that a rise of $2 a barrel in oil prices leads to a 2.6 point drop in the terms of trade index.
``If import prices continue to climb due to high oil prices and export prices decline, the trade conditions are expected worsen even further. In particular, the uncertain outlook of the global information technology industry could lead to a decline in semiconductor and LCD prices, the main driver of Korean exports,’’ the BOK said.
kevincho@koreatimes.co.kr
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