[ Economy > Economic Update ] 

Computers, Semicons, Communications Equip. Lead Growth

Industrial output in October rises 11.5 percent year-on-year while export growth wanes

The nation's industrial output in October surged by 11.5 percent from a year earlier. The rise was achieved despite a continued decline in exports of semiconductors, lackluster domestic sales of passenger cars and a decrease in production by areas such as other transportation equipment and oil refining.

By industry, the heavy and chemical industry recorded growth of 14.4 percent. Output in this sector was boosted by exceptional growth in the areas of computer and office-related machinery (up 51.4 percent), video, audio and communication equipment (up 23.5 percent) and semiconductors (up 23.8 percent). At the same time, the areas of paper goods (off 9.4 percent) and other transportation equipment (off 4.3 percent) underwent notable production decreases.

The light industry sector posted a negative 0.9 percent year-on-year growth, due mainly to a decline in output of other manufactured goods (off 7.5) and leather and shoes   (off 14.4), despite a steady increase in production of fur goods (up 7.9 percent) and cigarettes (up 14.1 percent).

 Producer Shipments Slow as Industry Cools

Producer shipments in October surged by 9.2 percent from a year earlier, registering the first single-digit growth rate for the year as slower growth affected most major industries. Forwarding for the domestic market surged by 6.4 percent year-on-year, boosted by shipments of computer and office-related goods, despite lackluster shipments of assembly metal and other transportation equipment. Overseas shipments increased by 12.6 percent year-on-year as exports of computer and related products boomed, despite a decline in the value of semiconductor shipments occasioned by drop in chip prices.

Forwarding of heavy and chemical industry products soared by 11.0  percent in October from a year  earlier. Shipments of computer and related goods (up 55.7 percent) and audio and communications equipment (up 22.6 percent) increased while those of other transportation equipment (off 6.2 percent) and paper goods (off 7.9 percent) decreased.

Light industry shipments edged up 0.2 percent in October, boosted by a 23.0 percent rise in forwarding of clothes and fur goods despite significant slides in deliveries of leather, bags and shoes (off 14.1 percent) and food and beverages (off 0.5 percent).

Autos, Semiconductors Boost Inventories Year-on-Year

Producer inventories in October surged by 18.8 percent from a year earlier, encouraged by a rise in reserves of automotive vehicles, semiconductors, clothing and fur goods. By contrast, inventories grew only 5.1 percent month-on-month, major gains coming from the areas  of semiconductors, chemical goods and passenger cars.

Inventories of non-metal mining goods (off 15.0 percent), leather, bags and shoes (off 10.1 percent) and furniture and other manufactured goods (off 10.0 percent) declined. Meanwhile, those of clothing and fur goods (up 42.3 percent), audio and communications products (up 57.8 percent), medical/optical machinery (up 67.7 percent) and automotive vehicles (up 53.1 percent) increased.

Sluggish Auto, Electrical Machinery Output Pull Down Operational Rate

The average operational rate in October fell by 1.7 percentage points month-on-month to 76.4 percent, due mainly to sluggish production of other electrical machinery and automobiles.

The manufacturing sector operational rate declined by 2.7 percent from a year earlier. Capacity utilization was impacted by lower production of other electrical machinery (off 22.2 percent), textile products (off 6.0 percent) and other manufactured goods (off 17.3 percent), despite relatively brisk output of machinery equipment (up 13.8 percent) and chemical products (up 4.1 percent). The production capacity index increased by 14.1 percent and 0.7 percent year-on-year and month-on-month, respectively.

Machinery Order Growth Static, but IT Facility Investment Surges

The growth of machinery orders slowed in October to increase by only 0.5 percent from a year earlier, as demand from both the private and public sector slackened.

Orders from the public sector expanded slightly by 2.3 percent  year-on-year, due to rises in orders from the electrical power and transportation industries. Private sector orders grew by 0.3 percent as demand for manufacturing machinery and  ship engines remained sluggish.

Facility investment surged by 20.3 percent from a year earlier, as  investment into information and communication-related areas such as computer and communications equipment continued its steady rise. Forwarding of machinery goods for the domestic market soared by 19.4 percent, boosted by a rise in shipments of computer and related goods and audio and communications equipment, and despite a drop in the forwarding of automobiles and electrical machinery.

Weak Residential Demand Hits Domestic Construction Orders

Domestic construction orders in October decreased by 16.8 percent from a year earlier. The fall was due mainly to a drop in orders for housing from the public and private sectors, even though orders generated through private road and bridge construction projects continued to increase.

The value of public sector order issuance contracted by 0.3 percent, mainly as a result of reduced demand for tap water and sewage facilities, although orders for roads and bridges rose. Private sector order issuance fell by 28.5 percent as demand for schools and hospitals contracted.

The construction permit area, a major future economic indicator, decreased by 7.5 percent in October, a marked change compared to the double-digit growth rates of the same month the year previous. Although the permit area for commercial purposes rose by 31.2 percent, that for residential and industrial purposes decreased by 19.4 and 17.8 percent, respectively.

Consumption Rises Despite Weakening Auto Sales

Consumption in October increased by 4.9 percent from a year earlier, despite weakness in the retail sector.

The wholesale sector registered growth of 5.8 percent, boosted by booming sales of computer and related products, home appliances and furniture. The retail sector, meanwhile, contracted by 5.6 percent as automobile sales slid, despite higher consumption of vehicle fuels.

Forwarding of domestic consumer goods was off by 0.1 percent from a year earlier, a decline slowed by increased forwarding of durable goods such as cellular phone sets and end-use nondurables like men's and women's clothing.

Export Growth Slows

Exports in October grew to $15.42  billion. However, the month-on-month increase was 14.7 percent, the lowest monthly rate of growth recorded to date in 2000. This was due to the rise of heavy and chemical industry shipments slowing from 31.2 percent in September to 18.3 percent plus the edging down of light industry exports by 0.1 percent from a month earlier.

Overseas sales of light industry goods in October contracted to $2.57 billion, down 0.1 percent from a year earlier, the result of sluggish sales of most products in the sector. They included clothing (off 9.2 percent), fabric goods (off 3.3 percent), textiles, tires and tubes (off 8.9 percent) and paper goods (off  2.8 percent). Exports of heavy and chemical products surged by 18.3 percent to $11.51 billion. Major contributors to this performance were thriving sales of information and communications equipment (up 36.7 percent) and passenger cars (up 42.7 percent), while sales of semiconductors (up 9.5 percent), electrical home appliances (up 8.6 percent) and machinery (up 0.7 percent) were lackluster.

Export growth dropped to 6.5 percent on a year-to-year basis in November, the lowest rate of increase since May 1999 when exports registered an increase of just 0.1 percent. Exports for the month amounted to $15.12 billion, amid weakening overseas sales of major products like automobiles, vessels, semiconductors and computers.

Oil Prices, Capital Goods and Materials Boost Imports

October imports leapt by 24.1 percent from a year earlier to $14.10 billion, boosted by the rise in international crude oil prices and increase in demand at home and from abroad. Imports of raw material, capital goods and consumer goods were up 23.7 percent, 22.5 percent and 33.2 percent, respectively.

Consumer goods imports rose to $1.48 billion, up 33.2 percent from a year earlier, amid an influx of most products including durable (up 35.5 percent), non-durable (up 55.6 percent) and end-use consumer goods (up 27.3 percent).

Imports of raw material amounted to $6.94 billion, up 23.7 percent from a year earlier, in response to steady increases in imports of crude oil (up 46.2 percent) and chemical manufacturing products (up 14.9 percent). Imports of steel material (up 0.4 percent) and light industry resources  (up 14.3 percent) slowed, however.

Imports of capital goods jumped 22.5 percent year-on-year to $5.67 billion as demand for information and communication equipment (up 53.2 percent) and semiconductors (up 30.3 percent) boomed. Import growth of machinery goods and precision machinery, on the other hand, slowed to 8.2 percent.

Imports in November, meanwhile, grew by 21.0 percent to $14.19 billion. This represents the lowest rate of growth since April last year when imports rose by 10.9 percent.

Exports Sustain Auto Production as Domestic Market Shrinks

Automobile production in October amounted to 291,000 units, up 4.4 percent from a year earlier. Exports to Asia and North America continued to increase while domestic consumption remained frozen as the economic slowdown took its toll on consumer sentiment.

By model, passenger car and commercial vehicle  output rose to 255,000 and 43,000 units, respectively, up 15.9 percent and 3.4 percent year-on-year, respectively. Factors contributing to the rise were booming exports, the introduction of new models and the normalization of operations at Renault Samsung Motors. The growth of production, however, slowed relative to the same month of the year previous. Multi-purpose vans led the overall production of passenger cars. Production of this category surged by 39.62 percent year-on-year, prompted by brisk sales in the United States and Canada.

 Domestic car sales dwindled by 13.1 percent to 117,000 in the wake of a liquefied petroleum gas (LPG) price hike and uncertainty surrounding the national economy. Domestic passenger car sales tumbled 11.2 percent to 87,000 units, the result mainly of poor sales of compact and small-and-mid-sized cars that are particularly vulnerable to economics shifts.

Sales of low-fuel-consuming diesel-engine multi-purpose cars and large-sized cars, on the other hand, continued to grow steadily. Sales of commercial vehicles fell 18.2 percent from a year earlier to 30,000 units, impacted by sluggish conditions in the construction industry, the main consumer of trucks, and paralyzed production lines at troubled Daewoo Motor.

 In the meantime, exports of automobiles increased to 173,000 units, up 20.8 percent from a year earlier. The boom in overseas shipments was due to continued strength in the U.S. market plus aggressive marketing tactics by domestic car manufacturers and their launch of new models.

By model, exports of passenger cars, centered around multi-purposes utilities and small and medium-sized cars, rose to 163,000 units, up 22.6 percent year-on-year while shipments of commercial vehicles decreased slightly to 10,000 units. By region, shipments to recovering Asian markets posted a phenomenal increase of 238.0 percent while those to the United States and Canada increased by 66.0 percent. Sales to the Middle East, Africa and Pacific are also rose, growing by 68.0 percent, 21.0  percent and 139.0 percent, respectively.

Exports Boom on Shipments of Wireless Equipment, Semiconductors & Components

Exports of electronic goods in October amounted to $6,182 million, up 17.8 percent from a year earlier, while cumulative shipments as of the end of October surged by 35.1 percent year-on-year. Exports of industrial electronic goods stood at $2,338 million, up 16.0 percent from a year earlier. Exports of wireless communications equipment such as CDMA and GSM cellular phones, for instance, and low-priced computers maintained their thriving trend, thanks in particular to strong sales in the U.S. market.

Exports of wireless communications equipment were the most outstanding in the group, growing 40.1 percent from a year earlier while fixed communications equipment and computers registered growth rates of  5.4 percent and 1.6 percent, respectively. Exports  of electronic components rose to $3,167 million,  an increase of 20.4 percent year-on-year, in the wake of flourishing sales of semiconductors, electronic pipe, manual parts and manufacturing components.

Semiconductor exports, which account for 70 percent  of Korean overseas shipments of electronic components surged by 34.7 percent while those of electronic pipe, manual parts and manufacturing components increased  by 82.7 and 39.5 percent, respectively.

Export growth, however, slowed compared with September's performance. Exports of electronic home appliances also rose, growing by 12.3 percent from a year earlier to $677 million. Shipments of video equipment rose by 4.2 percent, boosted by a 24.8 percent rise in overseas sales of VCRs and despite an 11.1 percent decline   in exports  of color television sets.

Exports of audio equipment soared by 59.6 percent,  due in the main to the whopping 182.2 percent rise in sales of radio cassettes and brisk sales of components. Overseas sales of home appliances such as air conditioners and microwave ovens slumped by 5.0 percent on   a yearly basis.                                       

Production Up but Trade Deficit Widens

General machinery production continued its steady increase in October, rising by 13.3 percent year-on-year. Month-to-month export gains by this category have registered in the 20 percent to 40 percent range this year, a trend that began to falter in September.

By item, production of manufacturing and air-controlling machinery surged by 13.4 and 35.8 percent, respectively while those of textile and farm machinery rose by 8.4 and 0.9 percent, respectively. Output of construction and mining machinery, though, declined by 2.6 percent. Forwarding in this category surged by 7.8 percent from a year earlier but again, the rate of increase slowed notably compared to September.

Forwarding of manufacturing, air-controlling and textile machinery increased by 19.9, 4.4 and 12.7 percent, respectively. Forwarding of agricultural machinery surged by 30.2 percent while that of construction machinery dwindled by 27.9 percent.

Exports soared by 22.0 percent from a year earlier, boosted by strong sales in major markets like the United States and Japan. By item, exports of construction and mining machinery rose by 16.8 percent while those of air-controlling machinery, textile, manufacturing and agricultural machinery increased by 28.6 percent, 79.8 percent, 55.5 percent and 149.6 percent, respectively.

By item, imports of manufacturing and textile machinery surged by 38.1 and 16.1 percent, respectively while those of construction/mining and agricultural machinery rose by 8.2 and 15.9 percent, respectively. However, imports of air-controlling machinery declined by 41.6 percent.

Although import growth declined in October, cumulative imports exhibited a robust trend. Against this backdrop, the deficit in general machinery trading continued to increase, reaching $200 million in October alone and 42.6 billion on a cumulative basis. Orders received by domestic makers of general machinery in October reached 193,172 million won, down 19.5 percent year-on-year while those for the manufacturers of special industrial machinery declined by 13.7 percent to 102,319 million won. Orders for construction/mining, metal/manufacturing and farm machinery decreased by 13.5 percent, 4.9 percent and 9.0 percent, respectively, while orders for textile machinery grew by 25.1 percent.

Output Slows While Exports Surge

October crude steel production amounted to 3,742,000 M/T, up 0.6 percent from a year earlier. Revolving furnace steel output surged by 2.9 percent to 2,126,000 M/T while that of  electric furnace steel decreased by 2.2 percent to 1,616,000 M/T. World crude steel output in October was up 3.7 percent year-on-year to 71,123,000 M/T, boosted by major European producers like Germany, Spain and Belgium. Output by the United States and Japan contracted while that by Brazil and India registered relatively high levels of growth.

Despite sagging domestic construction trends, local sales of steel products surged by 9.1 percent year-on-year to 3,438,000 M/T, largely due to the strength of demand  in the manufacturing sector, particularly automobiles. Domestic sales of reinforcing and pipe steel goods rose by 9.0 percent to 1,556,000 M/T while those of steel boards increased by 9.5 percent to 1,833,000 M/T, up 9.5 percent from a year earlier. Prompted by brisk domestic sales, production of steel goods soared by 4.8 percent to amount to 4,138,000 M/T.

Steel exports amounted to $591 million, up 3.0 percent from the same month of 1999. By item, exports of hot-rolled steel boards and steel structures increased by 13.6 percent and 9.7 percent, respectively, from a year earlier, to $99 million and $26 million, respectively. Overseas sales of sectional steel and pipe steel goods, though, declined by 15.9 and 36.8 percent, respectively,  to $30 million and $26 million, respectively.

By market, exports to China continued to increase while those to the United States and Hong Kong slipped. Steel imports recorded negative growth, posting a 3.3  percent year-on-year contraction to $560 million.

By item, imports of hot-rolled and pipe steel increased by 24.1 and 11 percent year-on-year, respectively, to $126 million and $40 million, respectively. Imports of  cold-rolled steel boards and zinc-coated board, though, decreased by 16.4 percent and 39.9 percent to $28 million and $9 million, respectively.

Year-on Year Output, Domestic Sales, Exports, Off

Various indicators relating to the national petrochemical industry were negative in October   compared to a year earlier. Domestic sales fell drastically while exports continued to decline, albeit slightly. Forwarding remained lackluster while inventories rose steadily. Industry output rose by 0.6 percent month-on-month. On a year-to-year basis, however, production contracted by 0.3 percent to 1,285,000 M/T. The operational rate remained unchanged despite a weakened level of forwarding. Cumulative production as of the end of October had surged by 1.6 percent to 12,388,000 M/T, indicating that industry production would further slacken in the face of continually bearish forwarding.

Most areas of the industry registered sluggish forwarding with the exception of shipments of synthetic textile material for export purposes. In particular, synthetic resin forwarding decreased by 23.1 percent and 5.2 percent for domestic and overseas markets, respectively,  in October, as sales weakened at home and abroad, especially in China. The steady fall in prices of synthetic resin goods has eroded industry profits. Chinese importers now waive the opportunity to purchase from overseas in anticipation of a further fall in prices. In  contrast, petrochem exports rose by 23.7 percent from a year earlier, boosted by intense industry marketing efforts. Given this background, the forwarding of petrochem products decreased by 8.3 percent year-on-year to 1,197,000 M/T. Cumulative forwarding as of the end of October surged by 1.1 percent to stand at 12,364,000 M/T.

Chinese Competition, World Economy, Hit Exports

Exports of textile products in October amounted to $1,540 million, down 2.2 percent from a year earlier. This represented the first year-on-year dip in textile exports since May of 1999, a response to eroding consumption triggered by the overall economic downturn around the globe and spiraling oil prices.

Intensifying competition with China and Taiwan also slowed overseas shipments. By volume, exports amounted to 300,000 tons, down 0.2 percent from a year earlier while the average export unit price stood at $5.08 per kilogram, down 0.9 percent year-on-year. By product, exports of textile materials surged by 7.8 percent to $73  million mainly due to brisk sales of polyester and acrylic textiles. Shipments of textile yarns declined by 2.8 percent to $119 million, largely due to poor sales of polyester   F yarns, the largest export item, despite brisk shipments of chemical textile yarns. Shipments of fabric goods upticked by 0.5 percent to $861 million during the same period, despite lackluster sales of cotton and polyester products. Exports of end-use textile goods such as  clothing decreased by 7.7 percent to $487 million as soaring oil prices eroded demand in the industrialized nations.

Exports to China and Hong Kong stood at $350 million, up 5.7 percent from a year earlier, thanks largely to booming sales of fabric goods and clothing. Shipments to the United States, by contrast, rose only by 0.3 percent from a year earlier to $282 million. Exports to Japan declined by 21.7 percent from a year earlier to $125 million on weak sales of fabric clothing. Textile imports amounted to $455 million, up 17.7 percent from a year earlier. In tandem with a steady rise in exports, imports of textile materials continued to increase while low-priced end-use goods from less developed nations like China and India began to flood the domestic market. Imports of high-priced clothes also continue to increase from Western industrialized nations.

Overseas Carrier Trade Strong but EU Threatens Trade Barriers

Exports by the nation's major shipbuilders in October continued to increase. Shipments rose by 46.1 percent year-to-year to $620 million boosted by brisk orders for container ships, in particular. On a month-to-month basis, builders of Very Large Crude Carriers (VLCCs) recorded an 8.7 percent increase in output. VLCC exports grew by 12.5 percent from a year earlier, as demand for  vessels in the over 300,000 DWT-class boomed.

Exports of cargo carriers totaled $363 million, up 172.4 percent and 1.8 percent year-on-year and month-on-month, largely on the strength of orders for large-sized container vessels in excess of 4,000 TEU (20-feet equivalent unit).

 The European Union has launched a Trade Barrier Regulation (TBR) investigation into Korean shipyards on charges of unfair trade practices. The probe came after the European Shipbuilders Association filed a suit against domestic concerns with the EU Commission, calling for anti-import measures on allegations of dumping. The Commission has promised to bring the matter to the  World Trade Organization should the two sides fail to reach a compromise. A sense of crisis began to grip European  shipbuilders as Korean shipbuilders expanded their  share of the world market, outperforming their Japanese counterparts. Additionally, Korean companies began to  foray into the cruise ship market, an area long monopolized by European concerns, prompting the latter to be on a further alert. European builders have also alleged that the Korean shipbuilders' expansion of capacity during the 1994/1996 period has created conditions of oversupply and a slump in prices in the world shipbuilding market.

 The EU will conduct the investigation over five to seven months. It will involve sending inquiries, visiting the related concerns and holding consultations before submitting its findings to the EU Commission in April or June this year before determining over whether to bring the issue to the WTO. Under the TBR, the initiators may take import-restrictive steps like a hike in tariffs and the  imposition of a fine as stipulated by the WTO. In this regard it may be compared the American Super 301  stipulation, which enables the U.S. government to take unilateral anti-import steps. In response to the move by the EU, the Korean government has maintained that it  has not extended any financial assistance to domestic shipyards, while the shipbuilders themselves say they have not sold below cost to undercut the market. They hold that the rise in orders they have experienced has been due to the fall in the won on foreign currency markets  and better competitiveness as a result of technological and productivity improvements.

Updated January  3rd 2001, By Dong-Uk Park (shanepak@kotra.or.kr)