March saw industrial production increase 9.1 percent over the same month last year, due primarily to an increase in chemical exports and the -5.1 percent decline that had been recorded in March of 1996. But growth stood at only 7.1 percent for the first three months of this year, lower even than the second quarter of last year-the slowest quarter at 7.3 percent growth. By industrial sector, production in the heavy and chemical industries rose 13.0 percent while light industry declined 5.7 percent, evidence of the further widening production gap between the two sectors.

Of the thirteen major items making up the heavy and chemical sector, industrial production of computers and office-related products rose by 31.3 percent while petrochemicals and semiconductors saw growth rates of 27.2 and 45.4 percent, respectively. Another category which marked relatively high growth was the audio/video and communications equipment industry which recorded 28.8 percent growth. All told, twelve of the thirteen items saw increases, except for optical and watch goods which marked a decline of 5.3 percent.

Of the nine light industry majors, only wood/wood products (2.3%) and rubber/plastic products (1.0%) experienced production growth, while the other seven marked declines. Light industry production as a whole declined by 5.7 percent, maintaining an 11-month-straight decrease record since May, 1996.

Manufacturers' shipments in March increased only 5.7 percent from the corresponding period of last year and were a negative 1.4 percent from a month earlier. Shipments of semiconductors, chemical products and petrochemical goods increased while the domestic demand for automobiles and clothing decreased drastically. Shipments for export purposes rose by 10.3 percent while domestic shipments rose only by 3.9 percent from the previous month.

Shipments of eleven heavy and chemical industry products like computers and office-related goods (40.1%) sustained an increase rate while medical/ optical equipment and watches (-4.5%) and other machines and equipment (-0.5%) marked declining rates. Six of the nine major light industry goods also saw declines. Of them, clothes and fur products recorded the sharpest drop at negative 28.5 percent.

Inventories rose by 13.8 percent, compounding the previous month's 13.6 percent jump, affected by expanded production of semiconductors and automobiles, which outpaced export growth and demand in the domestic market. Semiconductor inventories rose 52.7 percent while those for audio-video/communication facilities and automobiles increased by 48.5 and 32.9 percent, respectively. Inventories of petrochemicals and "other electric machines" marked relatively high increase rates of 27.3 and 26.6 percent, respectively, while five other items experienced negative growth rates. They included "other transportation equipment" (-30.7%), medical and optical instruments and watches (-29.0%) and computer and office-related equipment (-14.6%).

The rate of capacity utilization for the manufacturing sector, due to a decline in the production of ships and audio-video and communications goods, decreased by 1.8 percent from the same period of last year. Production capacity increased by 8.2 percent in March from 1996's same month but dwindled by 0.1 percent from a month earlier. The average capacity utilization rate in the manufacturing sector stood at 80.3 percent in March, up by 0.6 percent from February this year.

In terms of domestic investment in March, orders received by the nation's leading 250 construction companies reached $7.5 billion won, an increase of 54.2 percent from 1996's corresponding period, which was encouraged by the increase in orders from the public sector for the construction of electrical, water supply and discharge, and railway facilities. In the private sector, orders for housing and commercial construction also increased.

The public sector saw orders increase 90.7 percent from the same month of 1996, mainly boosted by the high rise for electrical generating facilities (941.0%), water supply and discharge facilities (262.3%) and railroads (145.0%). But orders in the private sector declined by 29.6 percent from 1996's corresponding period, affected by a decline in manufacturing sectors like storage houses and water facilities which recorded negative 44.5 and 90.4 percent, respectively. In contrast, orders in non-manufacturing sectors like offices (9,175.0%) and housing (49.9%) soared by 60.4 percent, over the same month of last year. Orders for the private sector as a whole thus rose by 31.0 percent from March of 1996. Construction and engineering sectors both saw remarkable growth rates of 42.4 and 68.1 percent, respectively, boosted also by high orders for housing and electricity and railroad-related facilities.

Orders received by the nation's 186 major manufacturing companies increased to $3.24 billion, up by 38.4 percent from the corresponding period of last year, mainly because orders in the area of transportation and construction had risen sharply, although orders for the manufacturing industry decreased due to lackluster business trends.

Retail and wholesale sales in March recovered slightly in some areas like automobiles. But due to the continuing economic slowdown, overall sales rose only 3.9 percent from March last year. In the wholesale sector, sales of computers and office-related facilities (25.4%), automobiles (14.5%), and fruits and vegetables (13.5%) increased while sales of fisheries products (-9.8%), foods (-5.1%) and beverages (-3.0%) marked declines. The overall growth rate was only 3.1 percent from the same period of last year. Sales in the retail sector, due by booming sales at department stores (9.0%), clothes (8.5%) and home appliances (6.9%), increased by 4.8 percent.

Shipments for domestic consumption declined by 0.1 percent. Although durable consumer products like deluxe passenger cars (173.3%), mobile telephones sets (116.6%) and wireless pagers (49.4%) marked increase rates, shipments of other durable goods like medium-size passenger cars (-32.0%) and telephone sets (-21.6%) saw declines, leaving the growth rate at 9.7 percent. Shipments in the non-durable sector decreased by 5.5 percent led by declines in books (-22.4%) and gasoline goods (-11.4%), although shipments of rubber boots (639.7%), music discs (89.1%) and medical products (10.4%) increased remarkably.

Meanwhile, imports of consumer goods in March rose by 3.6 percent compared with the previous month, thanks to the slight rise in purchases of both durable (10.8%) and non-durable products (11.4%).

Semi-conductors and Home Appliances Make Little Headway Overseas
Exports of electronics in May stood at only $3,285 million, down by 15.5 percent from the same month of last year, mainly affected by lackluster overseas sales of semiconductors and home appliances although exports of other industrial electronics did increase slightly.

In the industrial electronics sector, exports of wireless communications equipment and computer-related machines rose to $766 million, an increase of 22.3 percent from March of 1996. In the electronics home appliances sector, exports of refrigerators, washing machines and air-conditioners increased steadily while audio-video related exports declined continuously, which led to a $617 million dollar decrease in exports, down by 8.0 percent from the same month of 1996. Exports of electronics parts dwindled to $1,902 million, down 36.9 percent from the corresponding period of 1996, mainly due to a drop in the overseas sales of semiconductors, even despite a steady increase in exports of electronic tubes, liquid crystal displays (LCD) and printed circuit boards (PCBs). Exports of electronics goods during the first quarter of this year remained at only $9,262 million, a decrease of 41.0 percent from the same period of last year. Although exports of industrial electronics goods soared by 22.3 percent, those of semiconductors and home appliances dropped by 41.0 and 5.1 percent, respectively from the corresponding period of 1996.

The nation's export of color television sets dropped during the first quarter of this year while imports grew remarkably, arousing concern for the possible collapse of domestic production lines should the import of foreign goods increase continuously. Under the circumstances, the Korea Electronics Technology Institute (KETI) has developed a new technology needed for the commercialization of HDTV, which is expected to lead the TV markets of the future, jointly with leading home appliances makers; Samsung, Daewoo, Hyundai and LG.

New Models Boost Production Numbers
The production of automobiles in March, thanks to the debut of new passenger car models into the market, increased by 23.5 percent from a month earlier and 8.8 percent from the corresponding month of last year at 272,000 units. But during the entire first quarter of this year, production rose to 633,000 units, down by 9.9 percent from the same period of last year, affected by general strikes earlier in the year. Sales of automobiles remained extremely slow during the first three months of this year due to sluggish domestic demand and lackluster overseas sales, a fire further fueled by the continued weak Japanese yen against the U.S. dollar. Sales reached only 539,000 units, down by 17.8 percent from the same month of 1996, which has led to excessive inventories, production cuts and competitive sales of automobiles, worsening the management climate for the car makers.

Domestic demand, due to the continued economic slowdown, dwindled to 120,000 units, down by 9.1 percent from March, 1996. Car sales during the entire first quarter of this year also decreased to 306,000 units, down by 20.7 percent from the same period of last year. Sales of small and large size cars, categories that included most of the new models, and sports utility vehicles maintained their boom trend, but due to sluggish sales of medium-sized passenger cars, sales stood at 86,000 units, a decrease of 13.5 percent from the corresponding period of last year. Domestic sales of commercial vehicles, boosted by high business in the sector of micro buses and trucks, increased by 4.5 percent to reach 34,000 units.

Encouraged by active strategy to increase exports and decrease inventories, auto exports soared to 112,000 units, up by 7.1 percent from last year's same period. But exports declined by 13.7 percent to 233,000 during the first quarter of this year.

In order to mitigate the inventory problems in the wake of lackluster sales, Hyundai Motor Company reduced operations at some production lines and took some measures designed to promote sales including lowering interest rates subject to installment sales and placement of management staff into the business sector. Kia Motors, for its part, has also taken steps to invigorate the sales network while reducing operations at some manufacturing facilities. It has also expanded sales dealerships at home and in foreign nations like the United States, in particular.

Daewoo Motor has employed the most aggressive business tactics among the domestic car makers. It has focused on diversifying the foreign markets rather than reducing operations on domestic production lines. It is seeking joint-venture businesses with leading car makers of the developed world such as General Motors.

Imports Continue to Decline while Exports Rise
Orders received by the domestic machine makers, boosted by massive orders from state-funded projects involving electrical generation and the building of subway train cars, rose by 194.4 percent from the same month of last year. Despite the low orders from the private sector, orders from the transportation and construction field increased by 38.4 percent from March last year. Domestic orders during the first quarter of this year rose by 1.9 percent.

Exports rose by 11.0 percent in March, thanks to 15.1 percent to 33.4 percent increases for air-conditioning machines and agricultural equipment. But exports during the first three months of this year declined by 2.5 percent from the same period of last year. Imports decreased to $1.5 billion, down by 19.0 percent from the same month of last year, due to 9.4 percent to 41.4 percent decreases in chemical, transportation and textile machinery sectors. Imports during the first quarter of this year dropped to $4.2 billion, down by 11.9 percent from last year's same period. With this, the imbalance in machinery trade stood at $741 million, a decrease of 33.6 percent from 1996's corresponding period.

Domestic construction machinery makers, in bids to expand business in overseas markets under a mid- and long-term project toward globalization, have begun to set up foreign plants while increasing exports under the original equipment manufacturing (OEM) system. They have also faced increasing trade conflicts with foreign counterparts and have moved toward formation of block markets. Daewoo Heavy Industries, having excavation machinery plants in Belgium and China with production capacities of 3,000 and 4,000 units per year, respectively, plans to set up a related plant in Southeast Asia and is poised to expand its American New Jersey plant two-fold by the year 2000. Hyundai Heavy, now operating excavation plants in Jiang Su Sheng and Chang Zhou in China with an annual production capacity of 1,000 units, plans to expand its overseas businesses by, for example, setting up heavy equipment machinery plants in Indonesia and the United States within a few years. Samsung Heavy, for its part, is planning to increase overseas production to 35 percent of the domestic amount by the year 2000. Domestic firms are focusing on developing core components like main pumps and control valves while exerting efforts for standardization of related parts, as they will face difficulties in securing maintaining their competitiveness if they are not equipped with state-of-the-art technology.

Making Up for Lost Ground
Orders received by the nation's shipbuilders reached 543,000 gross tons (G/T) for 10 ships in March, up by 274.5 percent from the same period of last year. Order receipt during the first quarter of this year also climbed by 166.7 percent to 1,674,000 G/T, spurring speculation that the shipbuilding industry is going full steam ahead into recovery. By ship type, orders for tankers increased to 1,093,000 G/T during the first three months of this year, taking a 65.3 percent share of total orders, compared with 59.2 percent seen during the same period of the previous year. Meanwhile, orders for bulk carriers and container ships stood at 213,000 G/T and 170,000 G/T, taking 12.7 and 10.2 percent shares, respectively, compared with 14.4 and 22.9 percent seen during the corresponding period of last year.

Shipbuilding in March, however, decreased by 42.4 percent to 545,000 G/T for 13 ships due to temporary readjustment of operation due to the dramatic rise in shipbuilding late last year. Shipbuilding for the first three months of this year rose to 1,314,000 G/T for 30 ships, down by 18.7 percent from the same period of last year. Remainder orders in March were 13,462,000 G/T for 273 ships, about the same level seen in March last year and an increase of 4.6 percent from a month earlier. Domestic shipbuilders have concentrated on developing engines, and most import ship parts. Hyundai Heavy has embarked on a program of mass production of turbine blade engines enabling high-speed revolutions using a comparatively small amount of fuel, through which the nation has come to expect some import compensatory effect equal to 100 billion won per year. The engine is a core part for which the domestic firms have been totally dependent upon imports. Daewoo Heavy, for its part, with a view to expanding the production capacity of engines and overseas business, has decided to invest a total of 540 billion won over the next three years.

Crude Steel Production Rises Due to Expected Recovery
With renewed expectations for a steel industry recovery, production of crude steel increased to 3,068,000 metric tons (M/T) in March, an increase of 5.0 percent from the same period of last year, which represents the largest monthly amount so far this year. Pohang Iron & Steel Company (POSCO) has expedited production of steel products through its revolving furnace to 2,169,000 M/T, up by 8.1 percent from the same period of last year with a view to coping with the possible shortage of steel goods in the wake of the reduced operations at Hanbo Steel, the increasing demand for the hot-rolled sheets and in preparation of shortages due to repairs of its own furnace facility. Crude steel production in the revolving furnace sector rose to 2,169,000 M/T, up by 8.1 percent from last year's corresponding period. Steel production in the electric furnace sector also climbed by 19.2 percent to 1,439,000 M/T, boosted by the "full-fledged" operation of Kangwon Industries Ltd.'s sectional steel plant and a rise in the operational rate of related companies thanks to booming sales. This represents a 0.7 percent increase compared with March of last year when Hanbo was operating normally.

Exports of steel products reached $540 million in March, an increase of 8.7 percent from the corresponding period of last year while imports declined by 23.2 percent to $562 million. The average export unit prices lingered around $555 per ton, the highest since August, 1996, except for February when exports of steel structures rose sharply due to high demand in Vietnam. Amid the export increase, the trade deficit in the steel products sector narrowed to $31 million, compared with the $669 million seen during the same period, the previous year.

An Export Boom Rejuvenates the Industry
The nation's textile industry in March recovered slightly from the previous month's sluggishness, boosted by a rise in exports of yarn and knitted fabric materials. Exports of textile products in May, thanks to the continuous growth in overseas sales of synthetic fiber filament yarns and knitted and fabric goods, rose to $1,550 million, an increase of 54 percent from the corresponding period of last year. Exports of textile materials rose by 4.9 percent to $81 million while exports of textile yarns like nylon and polyester filament yarns rose by 39.2 percent to reach $167 million. Exports of fabric goods increased by 8.5 percent to $930 million during the same period, leading the export increase trend. In contrast, overseas sales of knitted fabric products, affected by the devaluation of the Japanese yen against the U.S. dollar and slower purchasing ahead of the return of Hong Kong to China, declined to $372 million, down by 10.5 percent from March of 1996. Exports to the United States, European Union and China increased while those to Japan and Hong Kong dwindled.

Imports, despite declining textile material and yarn purchases, increased to $150 million in March, up by 17.3 percent from the previous year's same month, mainly due to a rise in imports of clothes and other textile products. Imports during the entire first quarter of this year soared to $1,257 million, an increase of 2.0 percent from the corresponding period of last year. The increase in imports was mainly prompted by the influx of mid-and low-priced clothes from China and Southeast Asia and high-priced garments from Italy and Japan.

Hyosung T&C, which set up shop late last year and has been operating a massive plant with a monthly production capacity of 350 tons of nylon staple fibers (NSF), is planning to expand the current facility to one with a production capacity of 700 tons of related goods by the end of this year. Currently domestic firms import some $15 million worth of NSF from the United States every year but are increasingly opting for domestic product due to its relatively high quality. The demand for Korean NSF has also been increasing in Southeast Asia where the products from developed nations have begun to lose their competitive edge. So far, some 40 percent of the NSF has been imported, from suppliers like the European Union and Japan.

Price Recovery Sparks Optimism
Prices for petrochemical products in Southeast Asia, due to a drop in the influx of goods from the Western nations and a rise in demand in the local markets, have gone up since January. The prices of ethylene, which had already risen by $40 per ton, again climbed by $30 to $40 in April to reach $650 to $670. The price of synthetic resin also rose ahead of the maintenance period starting from May and the increase in demand from developed nations.

The petrochemical industry recorded a high rate of production growth based on expansion of production lines during the first quarter of this year while domestic and overseas sales maintained stable growth rates.