lthough domestic inventories stayed at a high level through September, industrial production and investment maintained stable growth rates while unemployment remained low.

Industrial production during the month, boosted by booming exports of automobiles and chemical products, maintained a relatively high growth rate of 7.3 percent, while it stood at an 8.0 percent level for the entire third quarter of 1996. With the reduced number of working days in September taken into account, the increase rate may virtually stand at 9 percent. The heavy and chemical sector saw a 10.5 percent increase rate in September while light industry marked minus 4.3 percent, propagating the so-called "bi-polarization" between the two industrial sectors.

Thirteen major heavy and chemical industries maintained production growth rates in September over the previous month. In particular, computer and office-related equipment (25.1%), audio, video and communications-related goods(17.1%), other transportation equipment (17.1%) and automobiles (15.6%) saw remarkable increase rates. But other machines and equipment declined (-0.8%) and medical/optical equipment and watches recorded relatively low increase rates of 1.0 percent. Only two of nine major light industrial items; paper goods (4.4%) and foods and beverages (0.1%) marked growth rates while the decrease rates for leather bags and shoes (-15.5%), clothes and leather products (-13.5%) and textile goods (-10.3%) expanded the category to -4.3 percent on average, compared to -3.5 percent seen a month earlier. With this, light industry marked a fifth straight month of decline since May.

Manufacturers shipments,despite sales increase for automobiles and chemical goods, marked only a slight increase of 5.1 percent from the previous month, due to a sluggish trend in the area of machinery and textiles. Shipments in the heavy and chemical sector rose by 6.8 percent from a year earlier, but were down by 0.8 percent from August while light industry saw a 2.9 percent decrease. Shipments for export purposes soared by 8.6 percent but overall growth remained sluggish, thanks to a slow shipment increase rate for domestic demand at 3.7 percent.

Inventories as of the end of September, amid sluggish domestic demand in the areas of metals and semiconductors, maintained a relatively high rate of 20.4 percent. Inventories of automobiles, audio, video and communications equipment and non-metal mining products rose during the period. Inventories in industries other than steel and semiconductors continued to decrease since marking 13.4 percent in February 1996, although they were still at 7.4 percent in September, slightly up from the previous month's 6.6 percent.

The capacity utilization rate in the manufacturing sector in September decreased for machinery producers (-10.5%) and other transportation equipment (-12.5%) while it soared in the field of automobiles (8.0%), and non-metal mining products (3.4%). The average overall utilization rate rose by 1.6 percent from a month earlier. Production capacity increased by 7.8 percent from the previous month, boosted by high growth rates in the areas of semiconductors and other electronics goods (41.3%), other transportation equipment (32.2%) and automobiles (9.7%).

Domestic construction orders received by major construction companies in September dropped to $4,270 million, but was an increase of 10 percent from the corresponding period of 1995. Orders in the private sector occurred frequently for the construction of factories, offices, and research institutes while the orders from the public sector decreased. Construction orders for the first nine months of 1996 stood 22.9 percent higher than the corresponding 1995 figure.

Orders received by 186 major machine manufacturing companies reached the level of $2,046 million, up 10 percent from the same period of the previous year and are maintaining a stable growth rate, although falling short of that seen during the previous month. Wholesale and retail sales in September increased by 6.6 percent from the corresponding period of 1995 while shipments for domestic demand rose by 0.4 percent during the period. Retail sales rose 8.8 percent, encouraged by brisk sales of fruits and vegetables (32.8%), department stores goods (11.8%), home appliances (9.7%) and foods and beverages (8.5%). The wholesale sector marked 4.6 percent increase in sales, down compared with that seen a month earlier, mainly due to sluggish sales for metal goods (-6.5%) and automobile parts (-8.7%). Shipments for domestic demand saw high increase rates for durable goods like mobile phones (117.1%), electric washing machines (56.4%), and large passenger cars (50.3%). But the average rate reached only 3.6 percent due to a decline in the rates for other goods like wireless pagers (-36.5%) and small-sized passenger cars (-14.6%). The average rate for non-durable goods stood at 2.6 percent, due to a decrease in rates for beverages (-28.0%) and shoes (-21.0%) although rates for gasoline (29.7%) and medical goods (13.7%) increased sharply.

In the meantime, imports of consumer goods in September rose by 14.8 percent, maintaining a relatively high growth rate, albeit slightly lower than the 22.1 percent recorded the previous month.

Competitiveness Fades Due to Weak Yen
xports of electronics goods in September fell below $3.135 billion, down by 20 percent from the same month a year earlier. This was due mainly to a fall in the price of Korea's major export item--semiconductors--by more than 20 percent from that seen in 1995 and weakened competitiveness of home and industrial electronics goods while makers wait for faster appreciation of the Japanese yen. Home electronics products, despite high sales in newly emerging markets like Russia, the Middle East and Latin America, saw sluggish sales in developed nations, affected by the weak yen. Total exports of electronics dropped by 2.4 percent from the same month of 1995. Products like VCRs, audio, air conditioners and microwave ovens, in particular, suffered from slow sales. Exports of industrial electronics goods, despite resumption in the export of mobile telephones and computer CPUs at full throttle, rose only slightly, by 7.7 percent, from the same 1995 period. The relatively sluggish export of the goods was due to dull export growth of computer monitors with high unit prices. Exports of LCDs which have been in short supply around the world increased two-fold but overseas sales of semiconductors and CPTs decreased by 32.7 percent from the corresponding period in 1995. Semiconductors, in particular, encouraged by a rise in the book to bill rate by 0.99 percent in the North American market, saw an improvement in the sales climate. But due to a price nose-dive of 16M DRAMs to $9 per unit, sales of semiconductors decrease by 46.8 percent from the corresponding period of 1995.

Recently, the personal computer industry has suffered from management hardships amid sales slowdown and an ever more competitive marketing war, which has resulted in pressure for lowering prices. Most main computer parts like the 12.1-inch TFT-LCD screen, and other components and video chips for Pentium 100MHz and 120MHz and Pentium-Pro 200MHz CPU and 17-inch monitors and have undergone a long-standing imbalance of supply and demand. While exerting efforts to reduce inventories, personal computer makers have attempted to multiply import channels for parts.

Samsung Electronics announced their development of the world's first 1G DRAM, which is equipped with four times the memory capacity of the 256M DRAM, paving the way for the company to take the technology initiative in preparation for the coming commercialization of the 1G DRAM which is expected to materialize by the year 2005. The 1G DRAM is likely to be used as a key component for the main memory system in computers and high-efficiency work stations and is expected to be applied to multimedia products and HDTV in the near future. The product, in particular, is expected to take the lead toward the era of using distance-medial treatment systems, bilateral communications equipment, satellite communications and integrated cards and three-dimensional graphics.

Efforts to Expand Exports and Overseas Sales Networks Pay Off
eptember's production of automobiles, boosted by exports, amounted to 228,000 units, an increase of 13.7 percent from the same month of 1995. Domestic demand, amid continuing economic slowdown, decreased to 119,000 units, down 4.8 percent from the same month of 1995 and 2.5 percent from August. Sales of passenger cars, discouraged by sluggish demand for mid-sized autos declined by 5.7 percent while commercial vehicles, affected by low demand for trucks, decreased by 2.5 percent from the corresponding period of a year earlier. Ssangyong and Daewoo Motor marked relatively high sales growth rates ranging from 20 to 30 percent, thanks to brisk sales for the Korando and Lanos, respectively. Hyundai Motor, due to sluggish sales of major models like Accent and Sonata saw a decrease rate of 10 percent compared with the same period of 1995.

Some good news came in the form of a high increase in exports, boosted by efforts within the industry to compensate for low sales in the domestic market, their expansion of overseas marketing networks, and Kia Motor's increasing participation in Indonesia's national car project. Exports in September soared to 95,000 units, up 23.4 percent from the same month of the year before and 10.4 percent from August. By regional difference, exports to Africa and the Middle East dropped by 20.1 and 8.9 percent from the same period a year earlier. But the sales in North America and Latin America rose by 27.2 and 65.7 percent, respectively, from 1995's same period, mainly due to booming exports from Hyundai and Kia Motors. Domestic end-use car makers have concentrated efforts to strengthen their competitiveness by, for example, helping parts supplying companies in their efforts to expand production lines and introducing a competitive bidding system for auto parts procurement. The five big makers, in bids to sharpen the competitive edges of their cooperative firms, plan to help them modernize their production lines and transfer some of their production facilities and technology to the cooperative companies. In the process, the car makers also plan to decrease the number of contract firms which stood at some 1,700 in 1995 to 1,200 by the year 2000. In introducing the competitive bidding system, they plan to open the bidding to all companies from home and abroad, expediting possible reorganization among the related firms.

Inventories Increase, Utilization Ratio Drops
teel production in September dropped to 3,056,000 metric tons (M/T), down by 2.6 percent from a month earlier and 2.3 percent from the corresponding period of 1995, due mainly to an increase in inventories and a drop in the capacity utilization ratio amidst the Korean Thanksgiving holiday season called Chusok. Furnace steel production maintained a five straight month reduction at 1,116,000 M/T, an increase of 0.4 percent from the previous month. But light furnace production decreased to 1,920,000 M/T, down 4.3 percent from a month earlier.

The steel market trend at first appeared to recover a booming period, boosted by high purchases from construction companies but it failed to invigorate the market remarkably due to the holiday season and increasing amount of transfer of facilities to foreign nations. Steel inventories, amid adjustment and demand increase, decreased to 604,000 M/T, down 6.1 percent from August. Firms dealing with steel bars, accepting persistent demand from construction firms, lowered prices to $336.25 per metric ton, down about $15. Prices for steel bars stayed generally low. Exports of steel goods, affected by a drop in both volume and price, decreased to $454 million, down 16.5 percent from the same month of the previous year while imports also declined to $508 million, down 33.5 percent from 1995's same period.

Amid concern over the possible widening gap in demand for high and low quality steel products, Se-A Steel Company has decided to construct a steel pipe factory with the capacity to produce 300 million tons of goods per year. Construction of the plant began in September and it is set to begin production of mainly high-quality products from June 1997.

Indicators Show Bright Prospects
espite a continuing sluggish export trend since the first quarter of 1996, industrial production in September, boosted by increasing orders in the private sector, maintained a 10 percent growth rate. Orders from the private sector, prompted by high sales in the fields of refined oil products, foods and beverages, transportation, automobiles, machinery, and agriculture and forestry, rose by 18.1 percent over the corresponding period of 1995. In contrast, orders from the public sector decreased by 28.6 percent, affected by a drop in orders for port facilities and electricity generation.

Exports of textile and cargo-lifting machines saw relatively high increase rates of 73.4 percent and 33.5 percent from the same 1995 period, respectively, although orders for chemical machinery dropped by 42.3 percent. Overseas sales of general machines declined by 3.2 percent from the same period. Exports of machinery during the first nine months of 1996 increased to $5.214 billion, up 4.7 percent compared with the same period the year before.

mports of chemical, paper and printing-related machines increased by 19.1 percent and 30.2 percent over the previous year's same period but imports of textile machines and air conditioning machines marked a slight increase of 3.7 percent during the period at $1.617 billion. The import growth rate which saw a dramatic hike since mid-1996 began to see a dull trend in September at 6.3 percent. With this the aggregate import through September reached $15.711 billion.

Amid growing interest in factory automation among management leaders, the industry has marked an average of 15 to 20 percent annual growth since 1990 at some $1,800 million in sales per year. But the process of remarkable growth failed to be backed by domestically-made products. Rather firms wanting factory automation have had to import facilities from abroad, so in reality, 50 percent of the domestic consumption came from overseas. The technology for factory automation, boosted by steady efforts at the state level, has entered a stage of being able to produce NC-manufacturing machines, simple robots and the initial stages of computer integrated manufacturing systems.

Production, Exports, Demand Down, Inventories Up
he domestic textile industry underwent further hardship in September in terms of diminished production and a rise in inventories amid continuing lackluster export and domestic demand.

Exports of textile-related goods stood at $1,472 million, down by 3.4 percent from the same month of 1995. Overseas sales of fibers reached $74 million, a decrease of 13.9 percent from 1995's September while exports of clothing, affected by continuing low sales in the United States and Japan, dropped by 18.7 percent to $451 million. In contrast, exports of yarn, which has seen a double-digit increase since early in the third quarter, soared by 22.5 percent to $125 million. Exports of yarn to China and Hong Kong, in particular, rose by 56.0 and 17.9 percent, respectively. Overseas sales of fabric also rose to $822 million, up 5.2 percent from the corresponding period of the previous year.

Imports increased by 4.8 percent to $450 million. The relatively low import growth rate was due to a sharp drop in the influx of raw materials for export purposes. But imports of consumer goods like clothes increased dramatically by 33.4 percent to $157 million, aggravating the widening trade imbalance.

The domestic polyester industry's profitability is expected to get a boost as a result of a drop in the prices of synthetic materials like TPA and EC. Exports of chemical textile products began to show signs of recovery from the latter half of 1996.

Weakened Competitiveness Amid Rising Costs
omestic shipbuilding companies received orders for seven ships together totalling 345,000 gross tons (G/T) in September, down 58.4 percent from the corresponding period of 1995. Orders received by Korean shipbuilders totalled 78 ships at 3,014 G/T during the first nine months of the year, a decrease of 34.5 percent from the corresponding period of the year before. The low rate of order receipt was due mainly to weakened price competitiveness for Korean firms as a result of a rise in production costs. But the Japanese companies, for their part, enjoyed a sharpened competitive edge resulting from low appreciation of the yen. Orders for container ships reached 45 ships of 1,254,000 G/T, taking 41.6 percent of the total while those for tankers and bulk carriers amounted to 14 ships at 1,024,000 G/T and 11 ships at 640,000 G/T, accounting for 34.0 and 21.2 percent of the total, respectively.

The shipbuilding ratio in September dropped to 12 ships at 372,000 G/T, down by 43.1 percent from the same month of 1995. But cumulative shipbuilding as of the end of September rose by 40.8 percent at 117 ships and 5,247,000 G/T. Retained orders slightly dropped to 267 ships at 11,677,000 G/T, compared with a month earlier when it was at 272 ships at 11,694 G/T. That represents a 12.3 percent decrease from the corresponding period of 1995.

Although the world's shipbuilding market was expected to see a stagnant period especially in terms of orders for container ships and bulk carriers, orders for the ships amounted to 6,158,000 G/T, accounting for 59.8 percent of the total, boosted by brisk orders from Japan, China and Southeast Asia. Orders for tankers remained sluggish at 1,499,000 G/T, 14.6 percent of the total but it showed signs of recovery as orders for 15 new VLCC ships were signed in September and consultations are underway for 20 more VLCCs.

In the meantime, the effectuation of the multilateral shipbuilding agreement under the Organization for Economic Cooperation and Development (OECD), which was originally due for July, was delayed due to problems involving ratification in the National Assembly. In addition, the related negotiation between the U.S. Congress and business representatives wrapped up without tangible results, prompting the need for domestic firms to prepare measures to cope with the situation.

Price Recovery Slows Due to Surplus in Demand
nternational prices for petrochemical products rose slightly recently. But the recovery has slowed due to the continuing drop in the price for TPA and other synthetic materials. It was also due partly to continuing surplus for related goods, caused by brisk construction and expansion of facilities by newly industrializing countries.

The domestic petrochemical industry saw high growth in September compared with the previous month, boosted by increased exports and domestic sales of synthetic materials. But the trend remained sluggish as domestic demand for synthetics saw little recovery. The production of synthetic materials and synthetic rubber, amid expansion of facilities and a rise in the utilization ratio, saw a steady increase rate. But due to sluggish demand for synthetic resin, the largest segment, production dropped by 1.5 percent from a month earlier. Domestic shipments increased 14.7 percent from August, prompted by increased purchase from chemical textile and rubber manufacturing firms. But shipments of synthetic resin rose only 2.5 percent from a month earlier. Exports boomed in almost all fields, marking an increase rate of 20.3 percent from the same month of last year. But exports on a price basis failed to see high increase, thanks to a decrease in unit prices for all items except synthetic rubber.