The boom in AI demand continues! South Korea's exports reached a record high in July, and chip exports broke the $40 billion mark for two consecutive months

The Zhitong Finance App learned that data released on Saturday showed that exports in July increased 62.8% year on year to 98.89 billion US dollars, setting the second-highest record in South Korea's history in a single month, after the historical peak of 102.25 billion US dollars set in June. After adjusting for working days, exports increased by 69.6% year on year. Although this growth rate is down from the revised 70.7% in June, it is significantly higher than economists' median forecast of 59.5%. Imports increased 26.5% to US$68.56 billion in the same month, and the trade surplus reached US$30.32 billion, breaking the US$30 billion mark for the second month in a row.

The chip “supercycle” continues: semiconductor exports soar 178.8% to $41 billion

Semiconductors have once again become the absolute core engine for South Korea's exports. In July, semiconductor exports reached US$41.01 billion, a year-on-year surge of 178.8%, breaking the US$40 billion mark for the second month in a row. Semiconductor exports in June reached a historical record of 44.8 billion US dollars. Although there was a slight decline in July, they were still the second-highest in history.

Continued increase in investment in AI infrastructure is a core driver of chip demand. The continued rise in fixed prices for DRAM and NAND flash memory, combined with the rise in demand for server memory driven by the popularity of AI and the advent of the inference era, have jointly supported the strong performance of semiconductors. Samsung Electronics said on Thursday that the semiconductor shortage is expected to continue until 2028; SK Hynix (SKHY.US)'s net profit for the same period surged 13 times year on year to an all-time peak.

Exports of computer-related products increased by 404% year over year to US$4.79 billion, and demand for enterprise-grade SSDs continued to grow against the backdrop of large technology companies' expanding investment in AI infrastructure. Exports of wireless communication equipment increased 51% to US$1.81 billion, driven by steady sales of high-end smartphones such as the Galaxy S26 series.

The export structure showed a trend of diversification. With the exception of semiconductors, total exports of other categories increased by about 26% year over year. Of the 20 major export categories, with the exception of household appliances, 19 achieved positive growth. Automobile exports increased 7% to US$6.2 billion, driven by global demand for environmentally friendly models such as hybrids; petroleum products grew 34.1% to US$5.7 billion, boosted by rising oil prices; petrochemical products increased 10.3%; and ship exports increased 46.9%. Minister of Industry, Trade and Resources Kim Jeong-kwan said that diversification of the export portfolio continues to show results.

Exports to China have nearly doubled, and exports to the US are driven by investment in AI data centers

Looking at export destinations, demand for AI-driven semiconductors is broadly supported globally. Exports to China: A year-on-year increase of 96.2% to US$21.68 billion, surpassing US$20 billion for the second month in a row, mainly driven by chips, non-ferrous metals and petroleum products. Exports to the US: Increased 68.7% to US$17.43 billion, driven by large tech companies' AI data center investment projects. Exports to the Middle East, which were previously affected by the war in the Middle East, also achieved their first increase in July since January.

Strong exports support the central bank's further tightening

The July export data provided new evidence for the Bank of Korea's monetary policy stance. The Bank of Korea raised the benchmark interest rate by 25 basis points to 2.75% last month, the first rate hike since early 2023. Central Bank Governor Shin Hyun-song has since said that decision makers still believe it is necessary to raise interest rates further, but the timing and pace will depend on inflation, economic growth, and financial stability.

In terms of inflation, the consumer price index rose 3.2% year on year in July, and core inflation remained at 2.5%, indicating that potential price pressure is still resilient. In terms of growth, the economy expanded 0.6% month-on-month in the second quarter, exceeding economists' expectations. Most economists expect the central bank to raise interest rates again before October, and a few think the rate hike may be brought forward to the August 27th board meeting.

Shin Hyun-song said that the 2.6% annual growth forecast made by the central bank in May appears to be clearly low and will be “drastically” raised in August because exports, investment, and consumption are all stronger than expected. The South Korean government expects the economy to grow by 3% this year, which is higher than the forecasts of the central bank and the International Monetary Fund.