Industrial production in May declined 10.8 percent on a year-to-year basis as the rise in exports faltered and sluggish domestic demand continued in all industrial sectors. Overall production contracted 0.3 percent from April's levels despite relatively strong showings in semiconductors and other transportation products which posted gains of 3.2 and 5.0 percent, respectively. Otherwise, output fell in most areas. Significant declines were registered by the heavy and chemical industry and the light industry sectors where output fell 8.6 and 19 percent, respectively.
 Within the heavy and chemical industry sector, production jumped in major items like other transportation equipment (up 46.3 percent), and audio and video and communications equipment (up 32.8 percent), but contracted in most others notably automobiles and trailers (off 43.8 percent), other machines and equipment (off 36.4 percent), other electrical machinery (off 34.7 percent) and assembly metal products (off 28.1 percent).
 Meanwhile, falls in production of the major products of the light industry sector such as wood and related products (off 45.1 percent), leather bags and shoes (off 35 percent), clothing and fur products (off 29 percent), and furniture and other manufactured goods (off 22.8 percent), resulted in the entire sector posting a decrease of 19 percent on a year-to-year basis.

Forwarding in May Shows Continued Decline

The forwarding of manufacturers' goods in May shrank 13.7 percent from a year earlier, as shipments and domestic consumption of automobiles and investment-related products like machinery equipment, metal and electric machines continued to weaken. Forwarding for export purposes rose 24.3 percent while that for domestic consumption dropped by 28.7 percent. Compared to April, forwarding was down 2.8 percent. Impacted by depressed domestic sales throughout 1998, forwarding has consistently registered sharper decreases than production.

                       
Inventories Continue to Decline as Production Tumbles

Inventories of manufactured goods as of the end of May decreased 8.4 percent from a year earlier, edged by continued declining production in automobiles and machinery goods. Levels were down 0.9 percent compared with those of April. Inventories of major items such as other electrical machinery (up 13.2 percent) and non-metal mining products (up 13.2 percent) registered increases, while automobiles and trailers (off 28.3 percent), other machinery and equipment (off 14.0 percent) and other transportation equipment (off 34.1 percent) posted drastic decreases.

Average Operational Ratio Depressed but Steady at 66.7 Pct.

The average operational ratio index of manufacturing industry which measures capacity utilization fell to 66.7 percent in May, down from April's level of 69.1 percent but above March's 27-year low of 65.2 percent. Ratios rose in the shipbuilding and semiconductor sectors but most other industries they fell, resulting in an overall month-to-month contraction in utilization of 2.4 percent.
 On a year-to-year basis, ratios were down 16.9 percent from May 1997, due to reduced working days in most industries except semiconductors, shipbuilding, oil refining and cigarettes. Tumbling sales were responsible for sharp falls in ratios for the automobile (off 37.6 percent), assembly metal goods (off 29.1 percent) and machinery equipment industries (off 26.2 percent)

Domestic Construction Orders Decline 62.3 Pct

Orders received by the 250 major Korean construction companies amounted to 1.65 trillion won in May, a 62.3 percent decrease from a year earlier. Orders from the public sector posted a relatively sharper decline, a result of the huge amount of orders issued in the same period of last year. There was also a drastic fall in orders from the private sector, impacted by the continuing sluggish demand for office space and housing.
 Public sector demand marked a 20.8 percent decline overall in May, as a result of decreased order issuance for land development (off 83.2 percent), office construction (off 51.8 percent), and road and bridge construction (off 35.7 percent). Construction orders from the private sector decreased in total by 79.3 percent, as those for housing (off 94.3 percent), office space (off 56.2 percent) and machinery installment (off 77.3 percent) all fell drastically.

Consumption    Sales in May Continue Steep Decline

Wholesale and retail sales in May dropped 16.3 percent from the same period of last year in the face of continued weakening demand for automobiles and tumbling department stores purchases. Wholesale sales shrank 13.7 percent from a year earlier. Major contributing factors were the continued declines in sales of oil and coal products (off 18.3 percent), construction material (off 24.3 percent), communications equipment and electrical machinery (off 33.8 percent), despite increases in sales of fishery products (up 29 percent), books and printed materials (up 21.3 percent) and non-alcoholic beverages (up 4.2 percent). Retail sales declined by 11.8 percent, strongly edged by low sales of home appliances and equipment (off 26.5 percent) and general food and beverages (off 20 percent). In the meantime, automobiles and related fuel vendors experienced a 36.7 percent decrease in sales due to a severe contraction in automobiles sales (off 68 percent) and related parts (off 21.7 percent).
 Forwarding of goods for domestic consumption decreased 28.5 percent from a year earlier. Forwarding of consumer durables, notably passenger cars (off 78.2 percent), large-sized refrigerators (off 47.6 percent), and water purifiers (off 56.7 off) registered an overall 37.9 percent decrease while non-durables like ready-made clothing (off 43.3 percent), gasoline (off 32.8 percent), and commercial printed material (off 31.7 percent) registered an average decline of 23.8 percent.
 Imports of consumer goods declined 42.6 percent in May on a year-to-year basis as consumer sentiment contracted sharply in the face of the deepening recession and the rise in unemployment.

Exports    Outbound Shipments Decline 5.6 Pct in June

Exports fell to $11.7 billion in June, a 5.6 percent decrease from the corresponding period last year. The falloff was due to faltering shipments of both heavy and chemical and light industry products as economic turmoil continued to grip importing Asian nations; falls in export prices for major items such as semiconductors and petrochemical products; and the ongoing domestic credit crunch.
 In the meantime, light industry exports declined 9.2 percent to $2.76 billion as exports of textile goods fell, and overseas sales of paper, tires and tubing continued to weaken. Shipments of heavy and chemical goods fell to $7.74 billion, down 0.9 percent from May of 1997.

Imports      Imports in June Decline 36.6 Pct.

Imports continued their decline in June contracting to $7.70 billion, a 36.6 percent falloff from the same month last year as domestic consumption contracted further, the price competitiveness of imported goods remained weak, and international prices of raw material continued to fall.
 Imports of food and beverages and consumer products fell to $720 million in May, down 44.8 percent on a year-to-year basis. The value of inbound shipments of raw material dwindled 34.1 percent to $4.14 billion over the same period, as prices of oil and other material declined and local consumption of chemical and steel goods continued to fall. Imports of capital goods stood at $2.8 billion, down 40.3 percent on a year-to-year basis, the result of drastic reductions in purchases of machinery goods (57.2 percent), and precision machinery (off 42.2 percent).

Automobiles
Production and Sales Plummet as Domestic Demand Wanes

Automobile production in May amounted to just 156,000 units, down 37.1 percent from the same month of last year, as domestic sales plummeted. Production of compact cars also fell due to strikes at some plants. Domestic automobile sales fell 61.8 percent on a year-to-year basis to 52,000 units in May, as the drop in disposable income in the wake of economic downturn and the rise in oil prices dampened sentiment among potential purchasers. Compacts cars were the only category registering sales increases, in this case, a three-fold rise over a year earlier, while sales of small and medium size passenger cars nose-dived by more than 80 percent.

Total sales of passenger cars in May plunged 63.6 percent on a year-to-year basis to 37,000 units. Sales of commercial vehicles fell by 56.6 percent to only 15,000 units. Sales of buses and trucks dropped by 63.2 and 50.7 percent, respectively. Exports of related goods declined 0.7 percent from a year earlier. Whereas overseas sales of compact cars maintained their upward trend with particularly strong sales by Daewoo Motor, their rate of increase slowed in May compared to the same month of last year.

Automobile Trends

(Cars, % change from previous month)

(Since1996, knockdowns excluded)		'97.5 Production Domestic Sales Exports 248,473 (-13.6) 136,878 (-10.6) 141,280 (22.7)   '98.3 Production Domestic Sales Exports 155,908 (25.1)  90,711 (23.9) 114,987 (54.4)   '98.4 Production Domestic Sales Exports 167,396 (7.3)  78,098 (28.0) 120,024 (4.5)   '98.5 Production Domestic Sales Exports 156,171 (-6.8)  52,284 (-33.2) 140,342 (16.9)

Textiles
Textile Exports Remain Sluggish

Exports of textile products sank to $1.52 billion in May, down 8.7 percent from the same period last year. The overall decline was due to low sales of fabric goods, yarn and material, although shipments of manufactured goods continued to boom. Shipments of material declined 14.6 percent to $65 million, as both operating rates and export prices fell. Exports of yarn, impacted by waning demand from major markets like Hong Kong and China, dwindled 15.4 percent to $841 million. However, exports of manufactured goods, bolstered by enhanced price competitiveness following the depreciation of the won and promotional efforts by the industry, increased 10.4 percent to $473 million. Exports to the United States, particularly clothing and textile F yarn, rose 17.4 percent while those to China and Hong Kong decreased 23.6 and 24.6 percent, respectively. Textile imports declined 44.4 percent to $218 million compared with May of last year due mainly to the continued appreciation of U.S. dollar against the won and shrinking domestic consumption.

General Machinery
U.S., EU Demand Boosts Exports of General Machinery by 15.1 Pct

 Orders received by Korean machinery builders in May marked a 41.7 percent decrease on a year-to-year basis as demand declined rapidly from both the public and private sectors. Orders from the public sector including transportation (off 98.9 percent) and communications (off 47.1 percent) were down 39.9 percent in total, while private sector demand in this respect posted a 41.9 decrease, most notably in the areas of traffic, storage and communications (off 45.8 percent) and the auto industry (off 31.2 percent). May's general machinery exports rose to $725 million, up 15.1 percent from a year earlier, thanks to a rise in demand from the United States, the European Union and China and despite contracted sales in Japan and Southeast Asia. Most machinery products except lifters experienced booming sales in overseas markets. Soaring exports from this sector were due mainly to shipments of chemical and metal manufacturing machinery, which posted increases in this regard of 134.9 and 71.5 percent, respectively. Previously torpid shipments of construction and agricultural equipment jumped in May by 28.1 and 28.8 percent, respectively.
 Because of shrinking domestic facility investment, general machinery imports tumbled 58 percent on a year-to-year basis to $673 million. Only imports of textile machinery were up, registering an increase of 26 percent on May of 1997. Imports of chemical and construction machinery, meanwhile, posted steep declines of 82.8 and 75.4 percent, respectively.

Machineryl Trends

(US$ million, % change from previous month)

'98.3 Production 685 (22.7)   '98.4 Production 623 (-8.8)   '98.5 Production 725 (16.5)

Electrical and Electronic Goods
Exports of Electrical & Electronic Goods Decline 9.2 Pct

 Exports of electrical and electronic goods in May fell to $3.15 billion, down 9.2 percent from the same month of last year, as shipments in almost all sectors including industrial electronic goods, electronic components, and home appliances weakened. Cumulative exports as of the end of May amounted to $15.6 billion, a 3.1 percent decrease on a year-to-year basis. Shipments of industrial electronic products shrank 7.5 percent to $713 million, impacted mainly by sluggish shipments of computers. Exports of electronic parts also fell; they were down nine percent from a year earlier to $1.97 billion primarily because of poor semiconductor sales. Within the sector only LCDs recorded an increase of shipments, boosted by sales to the United States which surged 43.5 percent in the same period. Despite strong sales in the U.S., exports of electronic home appliances declined overall to $463 million, the result of weak sales in the depressed markets of Southeast Asia.

Electronic Goods Trends

(US$ million, % change from previous month)

'97.5 Exports -Home appliances -Industrial -Parts 3,463 (4.2) 527 (-5.6) 771(-5.2) 2,165 (5.5)   '98.3 Exports -Home appliances -Industrial -Parts 3,346 (8.1) 549 (8.1) 756(7.0) 2,041 (8.5)   '98.4 Exports -Home appliances -Industrial -Parts 3,201 (-4.2) 544 (-0.9) 777(3.0) 1,880 (-7.7)   '98.5 Exports -Home appliances -Industrial -Parts 3,146 (-1.6) 463 (-14.7) 713(-7.9) 1,970 (4.8)

Shipbuilding
Shipbuilding Orders Up 7.9 Pct

 Boosted by a surge in receipts by Hyundai Heavy Industries, orders received by the Korean shipbuilding industry rose to 1,774,000 G/T in May for a total of 29 ships, up a whopping 245 percent from a year earlier. Cumulative orders for the year as of the end of May also rose 7.9 percent to 3,906,000 G/T for 70 ships. Orders for full container ships reached 685,000 G/T, amounting to 38.6 percent of total orders, followed by tankers, bulk carriers and automobile carriers, orders for which amounted to 438,000 G/T, 327,000 G/T and 220,000 G/T, representing shares of 24.7, 18.5 and 12.3 percent of the total, respectively.
 Actual shipbuilding output for May declined 498,000 G/T for 10 ships, down 15.3 percent from the same month last year. However, cumulative output as of the end of May was up 12.6 percent on last year's totals to 2,960,000 G/T. Outstanding orders as of the end of May stood at 18,574,000 G/T for 309 ships, a 32.1 percent increase from the corresponding period of last year, providing steady work for Korean yards for at least two years in advance.
 In the meantime, despite the continued financial crunch, the nation's shipbuilders outpaced those of Japan in order receipts in April and in terms of cumulative order receipts as of the end of May. Orders received by the Japanese industry as of May amounted to just 2,620,000 G/T, down 48.2 percent from a year earlier or two-thirds of the 3,906,000 G/T, on the order books of Korean shipbuilders.

Petrochemical Industry
Petrochemical Exports Rise 49.7 Pct

 Production of petrochemical products increased to 1,051,000 tons in May, up 18.2 percent from a year earlier. The increase followed a rise in production capacity for synthetic resin, material and rubber, and despite a reduction in operating days at some work sites. May's figures, though, represented a 6.5 percent decrease from a month earlier while the industry's average operational ratio fell to 75 percent, down seven percentage points from the previous month. While production soared, forwarding for the purpose of domestic consumption declined 6.4 percent on a year-to-year basis, due to the impact of the recession on buying power. Exports, however, increased 49.7 percent from a year earlier, thanks to overseas promotional efforts by the industry to offset declining domestic demand.

Steel
Steel Ind. Output Continues Slide

 Production of crude steel products in May declined 2.6 percent to 3,511,000 M/T, compared to the corresponding period of last year as client industry demand continued to weaken. Revolving furnace production amounted to 2,038,000 M/T while that from electrical furnaces amounted to only 1,473,000 M/T, a 10.1 percent decrease from a year earlier.
 Sales of steel goods in May increased by four to nine percent for certain items such as hot-rolled boards and reinforcing rods, while sales of cold-rolled boards and steep pipes posted declines. To counter sliding domestic demand individual manufacturers have focused their efforts on export promotion. The result has been sales of $734 million in overseas markets, up 29.7 percent from the same month of last year. However, May's exports were down 13.2 percent on those of April's due to anti-dumping measures by Canada, the United States and countries of the European Union.

Steel Trends

(1,000 M/T, US$ million, % change from previous month)

'97.5 Production Exports 3,604 (3.2) 566 (6.7)   '98.3 Production Exports 3,521 (8.4) 860 (32.0)   '98.4 Production Exports 3,418 (-2.9) 846 (-0.4)   '98.5 Production Exports 3,511 (2.7) 734 (-13.2)

 -