South Korea Manufacturing Recovery Outlook Weakens; Semiconductors Stay Strong While Chemicals, Steel Deteriorate

Industry experts have turned less optimistic on a recovery in South Korea’s manufacturing sector. They still see semiconductors improving next month, while the outlook for chemicals and steel remains bleak.

The Korea Institute for Industrial Economics & Trade said on June 21 that its July manufacturing outlook index fell 4 points from the previous month to 103. The index declined month on month for the first time in three months. The June current-conditions index came in at 99, down 8 points from 107 a month earlier. A reading below 100 means business conditions worsened from the prior month.

By industry, experts continued to expect semiconductor conditions to improve next month. The July semiconductor outlook index rose to 161 from 156 a month earlier. Ongoing investment by big tech companies and rising demand for artificial intelligence chips are set to further improve the sector, the survey showed.

The outlook for chemicals and steel, by contrast, remained gloomy. The July chemicals outlook index fell to 72 from 100 a month earlier, a drop of 28 points. Experts cited a reverse lagging effect as a key reason. If the war in the Middle East ends and international crude prices fall, refiners could post valuation losses because the value of crude bought at higher prices would decline.

The steel outlook index plunged to 78 in July from 122 in June, a 44-point drop. Experts cited the fact that the effect of trade barriers has not yet been reflected in prices as a negative factor. Higher logistics costs stemming from rising oil prices and possible demand swings depending on whether geopolitical uncertainty eases also weighed on the steel outlook.

The July mobile phone outlook index stood at 81. That was up 1 point from 80 a month earlier, but it remained below the 100 benchmark. The June current-conditions index for mobile phones was 81, down 12 points from 93 in the previous month. Higher semiconductor prices and a weaker won increased cost burdens, clouding both current conditions and the outlook for the sector.

Park Jong-kwan, Hankyung.com reporter, pjk@hankyung.com