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Growth momentum likely to slow in manufacturing sector

By Korea Herald

Published : Dec. 30, 2011 - 15:42

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IT products, automobiles expected to see moderate growth despite continued global economic slump


Korea’s major industries have a bleak outlook for next year, with the exception of semiconductors, general machinery and display panels, thanks to a delayed recovery of the global economy.

A slump in demand from advanced economies, Korean manufacturers’ key markets, will slacken export growth of IT products such as mobile phones and television sets, and pull down prices, market watchers said.

Automakers, shipbuilders and petrochemical companies are likely to see global demand come to a standstill and intensified competition with Chinese and Middle Eastern rivals in emerging markets.

Autos

The automotive industry faces a tougher year ahead as it bears slowing demand in advanced countries, but analysts say the local players will be able to secure positive growth in terms of profits.

“Hyundai and Kia will widen their profits even as they sell less abroad, and they will be able to do this because the timing of new launches across China, India, Europe, U.S. and other markets will be strategically managed and timed,” Ahn Se-hwan, an analyst at IBK Securities said.

The five carmakers here ― Hyundai, Kia, GM Korea, Renault Samsung and Ssangyong ― sold a total of 4.23 million cars in the January-November period this year, up 1.2 percent in terms of domestic sales and posting a 13.4 percent jump in exports.

The Korea Automobile Manufacturers Association says the number of cars sold from the five carmakers in the domestic market will post moderate growth of 1.4 percent for 2012 under an optimistic scenario.

“Demand here will continue to grow, but competition is going to be fierce as more foreign carmakers are launching compact, fuel efficient models to beat local players,” the KAMA said. It expects exports to grow 3.9 percent in 2012.

“Although demand is expected to slow in the advanced countries, sales from emerging markets will stay strong and there will be tax benefits from the newly ratified trade pacts with Europe,” it added. 
Cars bound for export are loaded onto a transporter ship in Ulsan. (The Korea Herald) Cars bound for export are loaded onto a transporter ship in Ulsan. (The Korea Herald)

Shipbuilding

A further decline in new shipbuilding orders will be unavoidable in the new year as persisting global economic uncertainties will keep trade volumes from growing significantly.

With some medium-sized shipbuilders undergoing restructuring and quenched ship financing, shipbuilding volumes are projected to decline as well.

Some shipping companies have recently delayed ship deliveries to put off payment due to financing difficulties, eroding shipbuilders’ profitability.

According to shipping service provider Clarksons, shipbuilding order backlogs have dropped to 6,195 vessels (120.55 compensated gross tons) from 7,851 vessels (146.82 million) a year ago.

Whereas European orders for bulk carriers, containerships and tankers have plunged amid the eurozone debt crisis, high value-added products such as liquefied natural gas carriers, drill ships and offshore facilities, in which Korean shipbuilders have an upper hand, are less affected by the economy.

“Unless there is a major change in the Chinese shipbuilding industry that relies on bulk carriers, Korea is expected to beat China in order backlogs in 2012,” Samsung Economic Research Institute said in a report.

Steel and machinery

With inventories piling up at home and abroad, especially in China, steel production and export growth are expected to slow down in the first half of the new year, but pick up in the second half.

Domestic demand for iron bars is likely to rise slightly on increased investment in construction, while demand for steel plates and cold-rolled steel will fall with reduced production of autos and ships.

Manufacturers of general machinery forecast growth in production and exports on growing demand for construction and facilities in emerging economies as they accelerate industrialization, according to Kim Jin-soo, a senior researcher at Korea Development Bank Research Institute.

Semiconductors

As for semiconductors, the country will see a new player entering the market by the first quarter of next year.

SK Telecom, which acquired Hynix Semiconductor, is now conducting due diligence and expects to close the deal by March. Considering that Hynix is the world’s second-largest memory chipmaker, it remains a matter of debate whether the two firms can produce synergy through the merger.

The memory chip market is projected to grow slightly in 2012 as the demand for NAND Flash memory will continue to rise with the increasing popularity of smartphones and tablet PCs, according to the economic outlook published by the Samsung Economic Research Institute. The local chipmakers’ exports of memory chips are also estimated to go up by 8.5 percent next year.

Another report released recently by Daewoo Securities said the NAND Flash memory market will exceed the dynamic random access memory market beginning in 2012. In 2015, the DRAM market will be worth $40 billion, but the NAND Flash market is estimated to reach $50 billion.

The report also said Samsung Electronics will invest heavily in smartphone and non-memory sectors, while Hynix will inject sums in improving the fundamentals within the memory chip market.

On another front, Samsung Electronics is deemed to benefit most as the trend for the global semiconductor market shifts from central processing units to application processors, it said.

It added that the demand for AP will significantly jump with the growth in the smart device market. The number of smartphones and tablet PCs owners is expected to reach 1.7 billion and 300 million, by 2015, respectively.

Electronics and telecommunications

The electronics and telecommunications industries showed a strong performance in 2011 despite economic uncertainties globally. In the first half of the year, the output and export increased 9.5 percent and 15.1 percent, respectively.

Industry watchers say the IT industry would see a moderate growth this year as well, with high-end devices such as smartphones and 3D TVs boosting the overall sales.

According to Morgan Stanley, the global sales of smartphones will surge more than 20 percent in the new year, making up about 33 percent of the total handset market.

The sales gap between lower- and high-end mobile devices will get more severe, while their price difference will continue to narrow.

Next-generation display and network services will also drive the overall sales of smartphones.

Korean telecom carriers plan to start the full-fledged nationwide coverage of the fourth-generation Long Term Evolution service in 2012. The faster mobile service will be available in Asia Pacific and North America within next year and in China by 2013.

Amid a slowdown in sales of conventional PCs, the demand for tablet PCs will also continue to increase this year, with the number of marketed units surpassing 100 million globally.

The global TV market was hit hard last year by prolonged consumption weakness in advanced countries such as the United States and Europe. The market, however, is expected to have sales momentum ahead of the London Olympics in July, with the demand for premium TV sets such as LED TV and 3-D TV growing in emerging markets.

The Korea Electronics Association predicted the nation’s IT industry could record 345 trillion won ($298 billion) in output and $168.8 billion in exports in 2012, 4.4 percent and 6.4 percent growth from 2011.

Petrochemicals

Although global markets are threatening to go into a tailspin, petrochemicals will likely remain one of the key export items that underpin Asia’s fourth-largest economy this year.

Exports of Korea’s four major refiners hit an all-time high of 76.1 trillion won ($66 billion) during the first ten months of 2011 on the back of brisk demand for their lighter, cleaner and lucrative petrol products, largely from emerging countries.

Faced with tapering profit margins and government pressure over gas prices at home, all the big four have been diversifying their client portfolios and installing state-of-the-art crude upgrading units as fresh sources of income.

This year, however, European woes are expected to slow the growth of the sector dominated by SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank.

“Despite some downbeat indicators also including slowing exports to China, demand from India, Vietnam, Thailand and other countries is boosting Korea’s petrochemicals industry,” Koh Yoo-sang, a senior researcher at Samsung Economic Research Institute, said in his 2012 outlook.

By Korea Herald reporters