Korean economy, fuel demand pressured as virus spreads

The rapidly spreading coronavirus outbreak in South Korea is forcing airlines to cut more flights and leading to a downward revision in economic forecasts for the country, a major regional importer of crude and exporter of oil products and petrochemicals.

Flagship carrier Korean Air will suspend seven Asia-Pacific routes and reduce service on 14 other routes around the world. The airline had already halted 20 of its 30 China flights and reduced service on eight of the 10 others since the virus outbreak began in Wuhan, China last month.

The country's other full-service carrier, Asiana Airlines, has made similar cuts and has ordered all employees to take turns on 10-day unpaid leave to help reduce costs. Budget carriers, including Seoul Air and Jeju Air, halted their flights to China in late January and were forced to cut service to southeast Asia as passenger demand plummeted.

Carriers in other countries are now reducing service to South Korea amid the outbreak. Japan Airlines has suspended its flights to Seoul and Busan from 1-29 March. Thai AirAsia canceled flights to South Korea from 6-27 March.

There are 763 known coronavirus cases in South Korea as of today, up from just 30 a week earlier. Seven people have died, according to the Korea Centers for Disease Control.

The government yesterday raised its threat alert to the highest level and vowed "unprecedented" steps to contain the disease, which President Moon Jae-in said has reached a "grave turning point." More than half of the county's coronavirus cases are now linked to the Shincheonji church in the southern city of Daegu, and more than 9,000 members have been placed in quarantine.

Economic activity in Daegu, the country's fourth-largest city, has nearly ground to a halt. Churches, restaurants and other high-risk gathering places across the country have been closed temporarily. Companies including Hyundai Motor and Samsung Electronics have temporarily shut down plants because of disruptions to Chinese parts suppliers or employees testing positive for the virus.

Banks and other economic forecasters have cut their targets for South Korea's 2020 GDP growth to below 2pc, compared with the government's official estimate of 2.4pc. Even before last week's escalation in infections, Moon warned that the economic situation was "more serious than we thought" and called on his cabinet to implement "all possible measures" to prop up the economy.

The impact of the flight cancellations on jet fuel demand, and an expected drop in petrochemical exports to China, South Korea's largest trading partner, means refiners will likely be among the companies hit hardest by the outbreak.

Air traffic is being reduced much more quickly than during previous health scares, such as the Sars and Mers outbreaks, South Korea's transport ministry said. Demand for South Korean oil products dropped by 11pc from a year earlier in March 2003, at the height of the Sars scare. Jet fuel demand fared the worst, sliding by 24pc.

South Korea's is the fourth largest crude importer in Asia-Pacific, behind China, India and Japan. It buys most of its crude from the Middle East.

By Tony Cox