South Korea Manufacturing Outlook Loses Momentum; Chips Bright, Chemicals and Steel Dim

Optimism over an improvement in South Korea’s manufacturing sector has weakened. Industry experts still expect the semiconductor business to improve next month, but remain gloomy on chemicals and steel.

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. It was the first monthly decline in three months. The June current-conditions index dropped to 99 from 107 a month earlier. A reading below 100 indicates business conditions worsened from the previous month.

By sector, experts continued to expect improvement in semiconductors next month. The July outlook index for semiconductors rose to 161 from 156 in the previous month. Ongoing investment by big tech companies and growing demand for artificial intelligence chips are set to support further gains in the sector.

The picture was far weaker for chemicals and steel.

The July outlook index for chemicals fell to 72 from 100 a month earlier. Experts cited a reverse lagging effect as a reason for the weaker outlook. If the war in the Middle East ends, international crude prices could decline, increasing the chance that refiners would post valuation losses on oil purchased at higher prices.

The steel outlook index plunged to 78 in July from 122 in June. Experts pointed to the fact that the impact of trade barriers has yet to be reflected in prices. Higher logistics costs driven by rising oil prices and possible demand swings depending on whether geopolitical uncertainty eases also dragged on the steel outlook.

The July outlook index for mobile phones stood at 81. That was up 1 point from 80 a month earlier, but remained below the 100 benchmark. The June current-conditions index for mobile phones came in at 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 handset makers.

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