Won Likely to Remain Weak Against Dollar

By Kim Jae-kyoung
Staff Reporter

The recent strengthening of the won against the dollar has raised hopes that the won's weakness is finally over ― but it is not the beginning of a long-term trend, according to global economists.

They said that the won is unlikely to continue gaining ground against the dollar at least over the short-term, as the U.S. dollar weakness following the Fed's aggressive rate reduction is a passing phenomenon.

The won fell to a monthly low of 1,477 per dollar Dec. 4 but since then, has gained ground, appreciating to 1,290 won Dec. 19. People's anticipation that the authorities would support a stronger won to minimize foreign exchange translation losses of companies, coupled with sustained dollar weakness, seems to have boosted the bullish won sentiment. The won closed at 1,306 to the dollar Wednesday.

Citigroup economist Oh Suk-tae said that the won-dollar rate will hover around 1,350 won in the coming month, supported by the global recession and de-leveraging. He forecast that the 2009 average exchange rate will stay around 1,300 won.

``Though people still usually think that a strong won is good news for the economy, a weak won may actually be better for Korea in the future as it can be a useful tool to support the troubled key export sectors, such as autos and semiconductors,'' he said.

``It will be difficult to see a renewed dollar weakness in the quiet year-end market,'' he added. ``Moreover, the government is not likely to artificially lower the year-end exchange rates, as it has already announced measures to reduce foreign exchange translation losses by changes in accounting rules.''

He pointed out that a won-dollar rate below 1,200 would be excessive considering the probable weak growth momentum throughout 2009.

Goldman Sachs economist Kwon Goo-hoon forecast the won-dollar rate to stay around 1,450 over the three-month horizon, saying that the end-year balance closing of foreign banks and redemption pressure for foreign investment funds could intensify de-leveraging in December, raising the won-dollar rate in the short term.

Roubini Global Economics (RGE) recently predicted that the won will remain bullish throughout 2009, citing accelerating global de-leveraging. RGE is a U.S. financial analysis outfit headed by Nouriel Roubini, a professor at New York University.

``This de-leveraging, plus the export slowdown and portfolio outflows from Korean equity and debt markets, might keep the won weakening versus the dollar until late 2009,'' RGE said in an article on its Web site. De-leveraging refers to a firm's attempt to decrease its financial leverage.


The Seoul market dipped yesterday as investors shed shares on the lack of positive market news, analysts said.

The benchmark KOSPI dropped 0.94 percent, or 10.65 points, to 1,117.86. The tech-heavy Kosdaq fell 0.44 percent, or 1.47 points, to 332.26.

The local currency rose 7.5 won to 1,299 won against the dollar.

Han Chi-hwan, an analyst at Daewoo Securities, said that the local market will not show much volatility until year-end as investors shun large-scale buying and selling.

"Big companies` production reductions dragged investor sentiment while the government`s willingness to speed up corporate restructuring in builders and shipyards offered short-lived momentum. Trading, most of all, lacked active participation by investors," he said.

Han said that the anticipation of an additional interest rate cut in January would boost the market early next year and lead foreigners to buy more local shares.

Regarding the proposed liquidity support by the government to troubled local carmakers, he said the government must ponder whether liquidity support really was necessary for local automakers.

"We`ll have to interpret that as the government`s willingness to continue its efforts to get rid of market uncertainty. Liquidity support for local carmakers would bring little change as it is really the U.S. carmakers` future paths that will affect local carmakers," he said.

Shares at Hyundai Motor dropped 4.64 percent to 38,000 won and Kia Motors Corp. lost 2.01 percent to 6,320 won.

Construction sector dropped by average 0.27 percent but major builders gained amid restructuring concerns. Sambu E&C jumped 14.68 percent to 16,400 won while Hyundai E&C inched up 1.23 percent to 57,300 won.

Daewoo Shipbuilding and Marine Engineering lost 6.21 percent to 15,850 won as the takeover of the company by Hanwha is expected to be delayed.

Samsung Electronics shed 0.86 percent to 456,000 won while POSCO gained 0.26 percent to 377,500 won.

By Jeong Hyeon-ji



The End of Oil




By Gwynne Dyer

Worried about ``peak oil"? The International Energy Agency's annual report, ``The World Energy Outlook 2008," admits for the first time that ``although global oil production in total is not expected to peak before 2030, production of conventional oil ... is projected to level off toward the end of the projection period."

When the Guardian's environmental columnist, George Monbiot, pressed IEA chief economist Fatih Birol on that opaque phrase, the actual date turned out to be 2020.

The IEA's previous reports, which assured everyone that there'd be plenty of oil until 2030, were based on what Birol called ``a global assumption about the world's oilfields": that the rate of decline in the output of existing oilfields was 3.7 percent annually.

But this year, some staff actually turned up for work occasionally and conducted a ``very, very detailed" survey on the actual rate of decline. It turns out that production in the older fields is really falling at 6.7 percent per year.

There are still some new oilfields coming into production, but this number means that the production of conventional oil ― oil that you pump out of the ground or the seabed in the good old fashioned way ― will peak in 2020, 11 years from now.

Birol assumes, or rather pretends, that new production of ``unconventional oil" will allow total production to match demand for another decade, until 2030 ― but this is sheer fantasy.

``Unconventional oil" is oil that is extracted, at great expense and environmental cost, from tar sands or oil shale. But nobody is actually working the shale and only one million barrels per day are currently being taken out of tar sands, all in Alberta.

The most optimistic production forecast for the tar sands in the 2020-30 period is five million barrels per day, half of which would merely replace declining Canadian production of conventional oil. Tar sands oil won't postpone the arrival of peak oil for long.

So what are we to make of this news? Monbiot uses Birol's admission to launch an impassioned appeal for the rapid development of non-oil alternative sources of energy, obviously urgent if we are close to ``peak oil," but this may not be as great a crisis as it seems. It may not be a bonanza for oil-producing countries either.

The IEA presumes that demand for oil will rise indefinitely, so the price of oil only gets higher after ``peak oil," but in technology, nothing is forever.

Set into the front doorstep of my house (and most other 19th century houses in London) is an iron contrivance called a boot-scraper. It is a device for scraping horse droppings off your boots before coming into the house, and the iron blade is worn into a shallow curve by a half-century of use.

Nineteenth-century cities depended on horses as a means of transportation. London in the 1890s had 11,000 horse-drawn taxis and several thousand buses, each of which required 12 horses per day.

Add all the private carriages and the tens of thousands of horse-drawn carts, wagons and drays delivering goods, and there were at least 100,000 horses on the streets of London every day ― each producing an average of 10 kilos (25 pounds) of manure.

That was two thousand tons of manure a day. There were flies everywhere, and if you didn't shovel it quickly, it dried up and blew into your eyes, hair, nose and clothes.

More horses were needed and the problem grew worse as cities grew. One writer in The Times in 1894 estimated that in 50 years the streets of London would be buried under nine feet (three meters) of manure.

In fact, within 35 years the streets of London were almost completely free of horses, and filled with automobiles instead, creating a different kind of pollution, but at least you didn't step in it. The same fate is likely to overtake oil-fuelled vehicles in the next 35 years.

The shift will be driven by concerns over foreign exchange costs and energy independence, and increasingly by the need to curb greenhouse gas emissions, starting with eve-tightening standards for fuel efficiency, followed by the first mass-market generation of electric vehicles due in the next two or three years.

The coup de grace will be delivered by third-generation biofuels, probably produced from algae that do not use valuable agricultural land and are fully competitive with oil in price and energy content.

We will never get back the eight wasted years of the Bush administration, and it may now be too late to avoid drastic climate change, but President-elect Barack Obama is clearly going to try.

You do not appoint Steve Chu as your energy secretary and Carol Browner as your ``climate tsarina" if you intend to evade the issue. So American oil consumption is going to start falling quite fast, quite soon.

The same is true elsewhere. Indeed, it is a safe bet that the demand for oil is going to fall faster than supply over the next 10 or 15 years, even if we are already at or near ``peak oil," for the annual decline in oil production just after the peak is actually quite shallow ― around two percent ― in the classic Hubbert curve.

And if demand falls faster than supply, the price will also collapse. Ladies and gentlemen, place your bets.

Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.




Office Vacancy Rising



By Yoon Ja-young
Staff Reporter

The vacancy rate is soaring in office buildings in Seoul amid the economic slump, while a growing number of businesses are going bankrupt, and the number of startups is decreasing.

According to R2Korea, an office market information provider, the vacancy rate of 747 office buildings in Seoul at least 10 stories tall or larger than 10,000 square meters was 1.8 percent in the fourth quarter, up 0.8 percentage points from the previous quarter, the biggest rise since the second quarter of 2004.

By districts, the rate was 1.5 percent downtown and 1.9 percent in southern Seoul. Mapo and Yeouido, where financial firms had trouble getting offices early this year, had vacancy rates surge 1.1 percentage points to 1.5 percent.

The buildings had no problem getting tenants, but the demand for offices has dropped due to the economic recession. Rent rose only 0.6 percent on average, and some luxury offices in southern Seoul even cut rents by around five percent, which isn't helping owners find tenants to any great extent. Not a few businesses are considering moving to smaller offices, or to the suburbs where rent is cheaper.

The vacancy rate for small buildings was 5.9 percent, surging 0.4 percentage points. R2Korea explained that the surge was small compared to big office buildings, as those who were in big offices were trying to move to smaller ones.

Only 48.9 percent of buildings in the survey were completely occupied, with the figure plunging by 15.4 percentage points from the third quarter.

Things were worse in shopping centers located in new apartments. Only 60 percent of shops were occupied in complexes completed after June this year. Shopping center owners are having trouble getting tenants.

Some global investment banks have been putting office buildings up for sale due to liquidity trouble, further setting the office market on a downturn.

chizpizza@koreatimes.co.kr