The May industrial output, despite increases of exports in major items such as chemical products, rose by only by 6.1 percent from the corresponding period last year due to a drop in the production of cars and a reduction in manufacturing dates. Production was down 2.8 percent from a month earlier. Production in the heavy and chemical manufacturing sector rose 9.4 percent while that for light industry increased 6.6 percent. The rate of increase in production between the two industries narrowed in comparison with the previous month.

Of 13 major categories of heavy and chemical industries, four recorded negative growth rates. Most markedly, assembled metal products were down 7.9%, while medical, optical goods and watches were down 6.7%. Meanwhile, production in nine other categories increased. They included office and computer-related goods (up 35.2%), audio-video and communications goods (up 30.9%) and petro-chemical goods (up 26.6%). The overall result was the rate of increase of total production within the heavy and chemical industries sector reached 9.4 percent in May.

Of the nine main categories of light industry, seven, including clothing and fur products (up 31.5%), tobacco (up 19.4%) and rubber, bag and shoes (up 16.0%) saw relatively high growth rates while wood products and food and beverage goods marked comparatively low rates, with increases of only 3.7% and 0.5% respectively. The entire light industry sector contracted by 6.6 percent, following a 4.9 percent contraction of the previous month, and continuing a trend begun in May, 1996.

The forwarding of manufacturers' goods in May, despite sluggish domestic demand, rose by 7.1 percent from the same month year before, due mainly to brisk shipments of semiconductor, office & computing goods, chemical products and automobiles. But May's growth rate in comparison with April's decreased by 0.2 percent due to lackluster sales of audio-video and communications equipment. Forwarding for export purposes rose by 23.0 percent while that for the domestic market by only by 1.4 percent, reflecting the generally torpid national business trend.

Housing sluggish
Construction orders received by the nation's major 250 construction companies reached US$5,635 million, down 27.8 percent from a month earlier, but up five percent on May of last year. In the private sector orders for non-manufacturing areas such as housing remained lackluster and those in public sector for projects such as land development and water and sewage facilities also dropped. Orders for office and road and bridge construction increased 137.3 and 88.0 percent respectively, while those for land development shrank by 44.4 percent. In the entire public sector, orders rose by only 0.9 percent from the previous month, despite orders for schools and hospitals increasing by 273.96 percent.

Within the private manufacturing sector, orders for office construction declined by 90.3 percent while construction orders for manufacturing space dropped by 30.5 percent, contributing to a total drop in orders from this sector of 40.7 percent. In contrast, orders from the non-manufacturing private sector increased 6.7 percent increase rate in this respect, boosted by a 138.3 percent increase for office space. Orders for private housing construction dropped by 29.2 percent.

Machinery orders down
Orders received by the nation's 186 major machinery makers fell to $2,526 million in May, a decrease of 8.0 percent compared with the corresponding month last year. In the public sector, demand fell due to a reduced orders from the transportation and power-generation sectors, a decline of 31.0 percent from the same month last year. In the private sector, despite an increase in orders of 9.6 percent from the non-manufacturing sector, overall demand from the manufacturing sector declined 10.3 percent from May 1996 due to continuing sluggish business trends. In all, orders for machinery from the private sector were down 3.1 percent from a year earlier.

Public sector demand weakens
Within the public sector, orders from the telecommunications area grew by 59.2 percent over the same month last year, while orders from other public area activities fell by 79 percent, including those from the power industry (down 38.5%), and from transportation (down 27.6%). As a result orders from the entire public sector in May were down 31.0 percent in comparison with the year before. In the private sector, by contrast, the level of orders declined by 3.1 percent compared to May last year.

Taking the private sector by category, the orders received by manufacturers, despite an increase of 47.7 percent experienced by the shipbuilding industry, fell in total by 10.3 percent The fall was due mainly to a sharp decline in orders for chemical goods (down 54.3%) and food and beverage goods (down 56.1%). Orders received by non-manufacturing sector soared 9.6 percent, aided by a 21.4 percent increase to the transportation industry, and a 20.7 percent increase to the agricultural and fishing industries. This was achieved despite a fall of 15.4 percent in orders to the remainder of the non-manufacturing area.

Imports of machinery continued their downward trend, registering a 13.8 percent drop from April, in which levels were down 18.8 percent from March. The forwarding of related goods for domestic consumption also fell, by 0.5 percent from the previous month.

Wholesale and retail sales recover but trend sluggish
Wholesale and retail sale in May rose slightly by 4.2 percent from a month earlier, recovering in some categories including office supplies, computers and fruit, but remaining sluggish in the rest. Despite lackluster sales of seafood (down 6.7%), automobiles (down 6.3%) and food and beverages (down 2.0%), the wholesale sales marked a 2.5 percent increase on a year earlier, due primarily to booming sales of office & computer-related goods and fruits & vegetables (up 9.6%). Retail sales experienced an increase of 6.0 percent, due to brisk sales of oil goods (up 13.8%), and clothing (up 11.3%).

Regarding the forwarding of consumer goods for domestic consumption, total volume contracted again, this time by 0.3 percent. The forwarding of consumer durables rose 7.1 percent, due to strong sales of mobile phones (up 209.9%) and large-sized passenger cars (up 42.1%), but the forwarding of non-durables declined 4.7 percent. In this category sales of fur coats fell by 46.6 percent and ready-made women's wear (down 34.7), despite improved sales of the Korean distilled liquor soju (up 46.6%), Korean style, and fruit juice drinks (up 18.2%).

In the meantime, imports of consumer goods were down 9.8 percent on May of last year and down 2.5 percent on April's total. The fall is due in the main is to reduced imports of durables (down 9.1%) and non-durables (down 7.5%). Imports of food grains (down 12.3%) continued their decline begun this year.

Inventories Fall in Face of Sluggish Domestic Demand, Due to Sharp Rise in Exports

Domestic sales, notwithstanding the stepped-up promotional tactics employed by the car makers, declined by 9.2 percent to 137,000 units. Domestic sales of passenger cars fell to 101,000 units, down 11.2 percent from the corresponding month last year, while sales of commercial vehicles amounted to only 35,000 units, a decrease of 2.7 percent against May 1996's total.

Shipments of automobiles, boosted by strong export sales of new models from Daewoo Motors and compact cars from Daewoo Heavy Industries soared 40.7 percent to reach 141,000 units. For the first time in May, Daewoo's exports of vehicles exceeded its domestic sales. By region, Daewoo's exports to Western and Eastern Europe increased 125.2 and 60.7 percent, respectively, following strong promotional programs in those markets. Shipments to Asia and Latin America also experienced relatively high rates of increase, by 131.6 and 34.1 percent, respectively. However, exports to North America fell by 0.8 percent, due mainly to a decline in sales in Canada.

In the face of high inventories in May, car makers Hyundai and Kia reduced production lines to cope with the still high levels of inventory. Nonetheless, the two companies have pressed ahead with plans to set up plants in foreign markets, having established massive factories in Indonesia and Turkey which have production capacities of 100,000 and 50,000 units per year, respectively.

Exports Up 6.1 Pct Due to Higher Sales of Industrial Electronics Goods and Electronics Components

Regarding exports of electronics components, the overseas sales of semiconductors, increased 8.7 percent from a year earlier and 7.5 percent from the previous month to reach 1,492,000 million dollars. The surge in demand was prompted mainly by demand to upgrade computer functions. All told, total exports of electronic components amounted to $2,171,000 million, an increase of 10.6 percent from a year earlier. Of particular note is the export of liquid crystal displays which rose 290.8 percent to $70 million, becoming the fourth largest export item among electronics components.

Concerning developments in the mobile telephone business, Hanaro Telecom and Onse Telecom were selected, respectively, to operate intra- and inter-city networks using Code Division Multiple Access (CDMA) systems. Subscribers for the service number more than two million. Hanaro and Onse join 10 other contractors selected to undertake major national telecommunications projects. Projects are accelerating for the development and export of digital video disc (DVD) products, which have emerged as a new generation of data equipment. Samsung Electronics and LG Electronics have both increased their DVD exports and production capability, while Kasan and Dooin Electronics have geared up to produce boards for DVD players.

Exports Decline Due to Lack of Investment

The export of machines in May continued their decline with domestic companies still failing to address their eroding competitiveness due to the issue of quality. Meanwhile, imports of related goods also dropped due to lackluster investment in facilities by related companies. The trade balance in these products decreased to a shortfall of $962 million, down 10.9 percent from the same period of last year. Exports of lifting machines rose in May by 5.9 percent while those of farm machinery, air-conditioning machines and metal manufacturing machines fell by 35 to 43 percent from the corresponding period last year. Overall, exports by the entire general machine sector decreased by $634 million, down 3.6 percent compared with the year before. Imports of metal and manufacturing machines, chemical machines and transportation and lifting machines underwent a decline of 11.7 to 15.3 percent. Imports of textile and air-conditioning machinery, in particular, dropped 58.2 and 65.8 percent, respectively, contributing in total to a 8.1 percent reduction in imports from this sector to a level of $1,596 million.

The competition among domestic machinery manufacturers has been severe due, to a long-standing economic downturn and a paucity of investment in new facilities. To cope with the sluggish business conditions, domestic manufacturers are employing a variety of new tactics geared to developing new products and strengthening services. Hyundai Precision, for example, has been developing state-of-the-art products which utilize its automated and up-dated production facilities to the full, in order to meet the varying demands from its customers. To counter foreign competition, the company has set up an around-the-clock customer service system. Daewoo Heavy Industries, mindful that buyers of manufacturing machines originate mainly in the automobile-related industry and amongst small and medium-sized companies, are planning to assist clients get the financing necessary to purchase its products. The company is also bolstering its customer service arm by setting up permanent exhibition sites. Meanwhile, Tongil Heavy has embarked on efforts to attract more orders for factory automation-related equipment while pushing ahead with plans to develop a more flexible manufacturing system.

Shipbuilding Volume Rises Sharply Due to Increased Orders for Tankers

Fourteen vessels were completed in Korean yards in May, amounting in total to 587,000 G/T. This represents a decrease of 31.9 percent compared with the same month a year before. Shipbuilding orders in May stood at 14,059,000 G/T representing a total of 277 ships.

The development of higher-value added LNG ships in response to orders from the Korea Gas Corp. (KOGAS), it is expected that Korean shipbuilders will be able to make significant inroads into foreign markets, and hence boost the value of future orders from overseas. Daewoo Heavy Industries has recently succeeded in locally developing cargo-related equipment for LNG ships, while Hyundai Heavy has also succeeded in manufacturing equipment designed to improve the efficiency of welding LNG tanks. LG-Honeywell Co., Ltd.. has developed a system for automatically checking gas tanks and operating LNG ship-related equipment. The company expects the development of the new system to offset imports by some $50 million annually.

In the meantime, Samsung Heavy, jointly with KAIST, has developed an automatic welding robot which can weld ships through computer control systems, a move expected to help the firm produce higher value-added ships in the future.

Operating Rate for Crude Steel Boosted Amid Increase in Facilities

Due to poor sales of steel boards, the steel industry failed to experience a recovery in May when domestic sales reached 3,280,000 M/T, an increase of only 0.9 percent from a year earlier. Although domestic sales of crude steel rose 4.1 percent over May 1996 due to a booming demand from the construction industry to complete ground construction before the advent of the rainy season, lackluster trends in shipbuilding industry and automobiles have led to a 1.1 percent drop in sales of steel boards. Exports of related goods, boosted by the global economic upturn and facilitated by the expanded production in major steel mills such as Hanbo for mainly hot-rolled sheets, increased $571 million, up 11.7 percent from a year earlier.

As part of efforts to manufacture scrap iron substitute materials overseas, Pohang Iron and Steel Co. began construction of a joint venture company in Venezuela for the production of some 1,500,000 MT-class hot briquetted iron (HBI) per year. The plant is the first HBI factory to be established overseas by a domestic manufacturer. In addition, the Research Institute of Industrial Science & Technology (RIST) has developed a new technology for recovering 98 percent of metal particles discharged from electric furnaces, and a new technique for treating sludge by using plasma technology. The developments will save costs as well as representing landmarks in the treatment of waste materials.

Export Rise Spurs Business Recovery

Analysed by region, shipments to the United States, the European Union, China and India rose sharply, boosted by brisk sales of polyester fabric materials and synthetic F-yarns; those to Japan, Hong Kong and the United Arab Emirates, meanwhile, declined. Exports to Brazil, in particular, rose dramatically following the recent signing of a textile agreement between the Latin American nation and Korea.

Imports of related goods reached $391 million, almost the same posted in May of last year, despite a rise in the import of polyester fabric materials. Purchases of textile materials, yarns and clothes have been generally weak amid continuingly sluggish economic conditions.

It is anticipated textile exports will show continued strength as a result of the Korea-Brazil textile pact which became effective June, 1996, The pact calls for, among other things, modulating some of Brazil's import control measures on fabrics.

Specifically, the agreement stipulates Korea shall be able to use 30 percent of its quota of textile exports to Brazil for the shipment of polyester materials. Korea's export quota to Brazil is designated in the main for the shipment of nylon goods. The agreement will be in effect for the next three years and will enable individual companies to expand their exports by six percent per year. Domestic textile producers have experienced difficulties in their efforts to expand shipments of polyester goods (their main export item) to the Brazilian market since Brazil's import quotas for such products were relatively small. On the other hand, Brazil maintained a relatively large import quota for nylon products.

Production, Forwarding on Sharp Rise Amid Expanded Facilities

Prices for petrochemical products in world markets have been on upturn trend this year, stimulated by strong demand from developed nations. At the start of May, though, prices began to weaken, primarily in Southeast Asian markets because of a rise in reserves. The development has come in the wake of an expansion of facilities in the region plus an increase in the Chinese production of synthetic resin has increased, despite a hike in ethylene prices. In Southeast Asian markets, prices of synthetic materials including TPA and AN rose slightly or remained at April's level, while those for main items such as LDPE, HDPE and PP declined by $20 to $40 per ton, prompting a general price downturn. But the prices of related goods during the January-May period rose by $50 per ton, brightening the prospects for price recovery.