It has been found that South Korean manufacturers’ average capacity utilization hit a 19-year low of 71.9% last year. The Nomura Research Institute said that the capacity utilization has been affected by the slowdown of the Chinese economy since 2011.
According to some experts, the low capacity utilization is because South Korean manufacturers have excessively increased their investment in facilities since 2008, when a global financial crisis occurred to result in a weak won and a temporary increase in their price competitiveness. For reference, their facility investment rose 0.8% in 2009 and 1.4% in 2010 whereas the average rate of increase was 0.3% from 2011 to 2017.
Experts point out that the 25% tariffs the United States is going to impose on South Korean steel in 10 days can accelerate a decline in capacity utilization and make it chronic in the manufacturing sector as a whole as well as in steel manufacturers.
“A capacity utilization of slightly over 70% is a very dangerous situation,” said Myongji University economics professor Jo Dong-geun, adding, “With the import duty around the corner, restructuring should not be delayed anymore.” Yonsei University economics professor Sung Tae-yoon made a similar comment, saying, “The import duty can result in different uncertainties in different sectors, not to mention the steel industry itself.”