Storage chip demand remains strong! South Korea's March exports skyrocketed against the high geopolitical pressure, with chip exports increasing by 151.4%.

Despite the escalating external risks brought by the Iran conflict, benefiting from the extremely strong demand for storage chips, South Korea's March exports continued to show strong growth, providing a strong buffer for the economy. Data released by the Korean Customs Service shows that after adjusting for working day differences, the value of exports in March soared by 41.9% year-on-year; unadjusted exports increased by 48.3% year-on-year, far exceeding the revised full-month growth rate of 28.7% in February. Imports during the same period increased by 13.2%, resulting in a trade surplus of $25.74 billion. Semiconductors remain the main drive for export growth, with chip exports reaching $32.8 billion, setting a new historical high, mainly benefiting from the continued strong demand for the DRAM/NAND memory chips of South Korea's two major storage chip giantsSamsung Electronics and SK Hynix, as global companies still have immense demand for these chips in the AI era. Driven by continued global investment in artificial intelligence (AI) and data centers, South Korea's monthly chip exports in March skyrocketed by 151.4% year-on-year. The Ministry of Trade, Industry, and Energy of South Korea stated that exports of automobiles, petroleum products, and computers also increased. Due to the surging cost of crude oil caused by the Middle East conflict, exports of petroleum products increased by nearly 55%. However, data from the Ministry of Trade, Industry, and Energy of South Korea shows that since the implementation of export controls on March 13, export volumes have declined, with exports of gasoline, diesel, and kerosene decreasing by around 5%, 11%, and 12% year-on-year, respectively. Exports of petrochemical products increased by a relatively modest 5.8%, as the rise in crude oil prices only partially passed on to finished product prices. In the fourth week of March, as the conflict intensified, petrochemical exports decreased significantly year-on-year, with exports of naphtha, which was also subject to export restrictions, plummeting by 22% in March. The data indicates that despite facing multiple pressures such as soaring energy prices and escalating geopolitical uncertainties, South Korea's export engine remains steady in the short term. The Iran conflict has driven up international crude oil prices, not only raising import costs but also adding inflation risks to South Korea, which is heavily dependent on overseas energy. To alleviate the secondary impact of the Middle East crisis on the South Korean economy, the government of Lee In-myeong has proposed an additional budget of 26.2 trillion Korean won (approximately $17 billion) to support consumers and businesses, including measures to stabilize high fuel prices, subsidize low-income families and small and medium-sized enterprises. The current resilience shown in exports may provide support for the Bank of Korea to maintain a cautious monetary policy, and policymakers need to seek a balance between stable external demand and rising financial stability risks. The Bank of Korea stated last month that the overall financial system remains stable, but warned that the escalation of the Iran conflict could lead to sharp fluctuations in the foreign exchange and asset markets. Lee Soohyung, Director of the Bank of Korea, pointed out that rising energy prices could push up inflation, while imbalanced economic growth and a tightening financing environment could drag down fragile industries, exacerbating credit risks. The Middle East crisis, while dragging down economic growth and pushing up inflation, has put the Bank of Korea in a dilemma. Governor Lee Ju-yeol will preside over his final interest rate decision on April 10, to be succeeded by Shin Hyun-song. The market is closely watching whether inflation risks will ultimately push the central bank to shift towards a more hawkish stance. In terms of export destinations, exports to China increased by 64.2%, exports to the United States increased by 47.1%, and exports to Central and South America increased by 37.7%.