Industrial Outlook for 2018
It is expected that the Korea industry will be generally sunny but cloudy for some sectors in 2018, the Year of the 'Golden Dog' according to the Chinese Zodiac system.
It is a dominant view among experts that the semiconductor industry which represents Korea will continue to enjoy a boom this year after last year. On the other hand, many experts say that the Korean automobile industry will face difficulties due to the renegotiation of the Korea-US Free Trade Agreement (FTA) among others. The Korean chemical industry has made a great advance last year but many experts say that its progress will falter or slow down this year. The Korean shipbuilding industry is expected to struggle this year, continuing from last year, due to the prolonged order cliff.
Semiconductor Industry Expected to Continue to Grow
The semiconductor industry was the main player that took the lead in the Korean industry last year. According to the Ministry of Science and ICT, Korea's semiconductor exports ran to 88.3 billion US dollars by the end of November, up 56.6% from the same period of last year. Strong exports of semiconductors drove up the volume of semiconductor trade above US$1 trillion in three years since 2014.
According to a survey by IHS Markit, Samsung Electronics rose to first place in global semiconductor sales by dethroning Intel which had kept the No. 1 spot in 25 years. By the third quarter, Samsung Electronics enjoyed a global market share of 14.5 percent, generating sales of US$16.53 billion. Intel chalked up a turnover of US$15.879 billion with a 13.9 percent market share. SK Hynix also made great strides. SK Hynix recorded a share of 6.2 percent in the global market by the third quarter with sales of US$7.084 billion.
The semiconductor industry is expected to continue to enjoy a boom this year, continuing from last year. This is because as demand will be able to spike when supply growth is limited, semiconductor prices may jump. However, as DRAM and NAND flash prices went up as high as they could, last year, it cannot be ruled out that the causes of hikes in semiconductors of the year will hardly pull up semiconductor prices a great deal.
Optimistic Outlook on Oil Refinery industry
The Korean oil refinery industry is generally optimistic about its earnings this year due to strong refining margins and stable oil prices. Refining margins mean profits from prices of petroleum products such as gasoline and diesel oil minus crude oil and retail prices. The higher a margin is, the more profits a company makes.
Last year, the margin had steadily risen since last July when the margin (based on Singapore compound margins) hit US$7 per barrel due to a drop in supply sparked off by Hurricane Harvey in the United States and a hike in international oil prices. Experts generally say that refining margins are likely to remain above US$7, as international oil prices are stabilizing. It is also good news that international oil prices can reach at least US$ 50 a barrel.
However, the fact that oversupply can take place in non-refinery sectors such as paraxylene (PX) is a problem for the refining industry. This is because there is concern that China, India and other countries will open new production facilities to supply non-oil refinery products such as PX, pruning prices of Korean products and weakening Korean oil refinery companies’ profitability.
Chemical Industry Outlook Uncertain due to Glut from North America
The Korean chemical industry understands that the market outlook is uncertain due to oversupply from North America. A decline in sales is expected as global demand for ethylene grows by 5 to 6 million tons per year, expanded ethanol cracking facilities (ECCs) in North America may increase ethylene supply by 10 million tons for the next one year.
However, some analysts say that there is a possibility that the Korean chemical industry may enjoy a structural boom in ABS and PVC with no possibility of gluts from North America. In this case, LG Chem and Hanwha Chemical will be able to achieve strong earnings this year.
Automobile Industry Expected to Grow Slightly
The Korean auto industry is expected to see a slight increase in both production and sales this year due to the growth of developed and emerging economies and the effects of new car launches. However, it is analyzed that trade issues related to the global protective trade trend, including renegotiation over the Korea-US Free Trade Agreement (FTA), may serve as a risk.
The Hyundai Economic Research Institute (HRI) recently published a report on major economic forecasts by industries and their implications, which showed that the production of the Korean automobile industry this year will increase 5.5 percent to 4.67 million units. Domestic sales rose 1.5 percent to 1.64 million units while exports grow 7.0 percent to 2.95 million units. However, it was forecast that renegotiations over the Korea-US FTA, the launches of new cars by global competitors and intensifying competition in technology will act as a factor that will impede the growth of the Korean auto industry.
Domestic consumption is expected to improve slightly, but domestic sales are expected to only slightly increase. Consumption may slow somewhat due to household debt, interest rate hikes, and the possibility of cooling the real estate market.
Shipbuilding Hopes Turnaround with Difficulties Forecast in 2018
The Korean shipbuilding industry is expected to have difficulties as it did last year, but there is also a forecast that a moderate recovery will be made thanks to a global economic recovery. This is because demand for vessels is expected to climb as marine trade volume increases due to the growth of the world economy with developed countries taking the lead. The Hyundai Economic Research Institute predicted that new orders for 2018 will increase by 10 million CGTs compared to last year thanks to a rise in global orders. The UK's shipbuilding and marine analysis agency Clarkson Research also raised orders in its forecast for this year in New Shipbuilding Market 2017 - 2029 Report.