In October, the combination of a stronger won and falling international oil prices pushed South Korea’s import prices back into decline after just one month. Conversely, a surge in exports of information technology (IT) items centered on semiconductors drove the export volume growth rate to its highest level since the relevant statistics began. With both volume and prices rising at once, the indicator of South Korea’s external purchasing power also set a new all-time high.
According to the export-import price indices (provisional) released by the Bank of Korea on the 13th, the October Import Price Index (won basis, 2020=100) came in at 156.86, down 1.8% from 159.72 the previous month. The reversal to a decline, after import prices had risen through September, was driven by the simultaneous fall in the exchange rate and oil prices.
Indeed, the average won-dollar exchange rate appreciated 1.6% from 1,359.00 won in September to 1,337.66 won in October, while the average Dubai crude price fell 2.6% over the same period from $113.71 to $110.73 per barrel. The structure is one in which lower import raw material prices converted into won dragged down overall import prices.
By sector, raw materials fell 3.0% from the previous month, led by mining products (-3.0%), while intermediate goods (-1.0%), capital goods (-1.8%) and consumer goods (-1.4%) all declined. Compared with the same month a year earlier, however, prices remained 13.5% higher due to the effect of mining product prices.
Exports moved in the opposite direction. The October Export Price Index (won basis) rose 0.7% from the previous month, escaping two consecutive months of declines in August (-3.5%) and September (-0.5%). Year-on-year, it rose 36.7%. This came even as the exchange rate fell, because prices of key items such as semiconductors remained strong. Agricultural, forestry and fishery products rose 1.8%, led by fresh seafood (26.3%), while among manufactured goods, primary metal products (-3.1%) were weak but computers, electronics and optical devices (semiconductors and others, 3.7%) led the gains. On a contract-currency basis, export prices rose 2.4% from the previous month and 45.5% year-on-year.
Export volumes produced even more dramatic figures. The October Export Volume Index (2020=100) soared 43.9% year-on-year to 169.44, the highest growth rate since the statistics began. It marked the 12th consecutive month of gains since November of last year. Export volumes of computers, electronics and optical devices — encompassing semiconductors, computer memory devices, electronic display devices and semiconductor manufacturing equipment — grew 51.2%, effectively driving the entire increase.
With price increases added on top, the increase in value terms far outpaced the increase in volume. The October Export Value Index jumped 107.6% year-on-year to 276.25, more than double the level a year earlier. Among these, the Export Value Index for computers, electronics and optical devices surged 214.8%, leading the overall increase.
Import volumes also grew, reflecting expanded facility investment and production. The October Import Volume Index rose 14.9% year-on-year, led by computers, electronics and optical devices (50.6%) and machinery and equipment (41.3%). The Import Value Index rose 36.6% over the same period, exceeding the growth in volume.
Indicator (2020=100)October figurevs. previous monthvs. same month last yearImport Price Index (won)156.86-1.8%+13.5%Export Price Index (won)-+0.7%+36.7%Export Volume Index169.44-+43.9%Export Value Index276.25-+107.6%Import Volume Index–+14.9%Import Value Index–+36.6%
Note: Absolute October figures for the Export Price Index, Import Volume Index and Import Value Index are not shown because they were not provided in the disclosed data.
Terms of trade also improved significantly. The Net Barter Terms of Trade Index — meaning the quantity of imports that can be purchased with export proceeds — rose 21.3% year-on-year. This was thanks to export prices (44.3%) rising far more steeply than import prices (18.9%). On top of this, the Income Terms of Trade Index — showing the quantity of goods that can be imported with total export value — soared 74.6% year-on-year to a record high, as the rise in the Net Barter Terms of Trade Index combined with the surge in the Export Volume Index. The income terms of trade is an indicator directly tied to real income, meaning that South Korea can now bring in more goods even with the same exports.
These indicators compactly illustrate how tightly South Korea’s economic growth engine is bound to the semiconductor cycle. Most of the increase in export volume and value came from computers, electronics and optical devices, and the rise in import volume likewise has a strong character of expanding production facilities, such as semiconductor manufacturing equipment and chemical products. This means that if the semiconductor upturn reverses, the volume, value and terms-of-trade indicators could all be shaken at once.
Conversely, the decline in import prices is a factor that lowers the cost burden on manufacturers that use raw materials. If the exchange rate and oil prices hold at current levels, upward pressure on consumer prices may also be limited. However, a stronger won could weigh on exporters’ won-converted revenue, so how much the strong volumes translate into actual profits is expected to vary by company depending on pricing power.