Bouncing Back

Manufacturing production continues to recover after being hit by the global economic downturn. LCD panels are selling like hot cakes, while semiconductor prices are rising thanks to an increase in sales. Also rising are the operation ratios of semiconductor factories.

Automakers are enjoying an increase in exports and domestic sales, while demand is expanding in the petrochemical industry along with a rise in naphtha prices. These signs clearly indicate that the manufacturing industry is recovering.

According to a July industrial report by the Office of National Statistics, production in the mining and manufacturing industries increased 0.7% from a year before. It is the first time since September 2008 that production has turned to the plus side.

In October 2008, production was -1.9% down from a plus figure the previous month before marking -25.5% in January of this year, a record low. July production rose 2% from the previous month, suggesting a gradual recovery.

The mining and manufacturing production index reveals growth rates in many of Korea’s major industries, including electricity, gas, mining and manufacturing. Such index growth means the Korean economy has entered a recovery phase. This means the economy has recovered to what it was before the global economic crisis and is now improving on that. Korea has entered the recovery phase much faster than expected, an economic researcher said.

By industries, semiconductor and parts production jumped 5.2% from a year earlier, while automobile and basic metal production rose 9.9% and 3.4%, respectively. The manufacturing industry’s average operation ratio stood at 78.7%, marking an increase for the sixth consecutive month. This is the highest since July 2008 when the figure stood at 79.2%. The operation ratio index was calculated using the operation ratio of 2005 as 100. The average index in June reached 97.4, a big rise from 72 in January. Industries that surpassed the 100 line in June were food, manufacturing, chemical materials, chemical product manufacturing, semiconductors and audiovisual devices.

In July, the cyclical component of the coincident composite index rose 0.9% from the previous year, the fifth consecutive month it has risen. The leading composite index fell to -4.3% in December of last year before bouncing back to 5.8% in May and 7.9% in July, of this year.

The operation ratio of small and medium-sized manufacturers has risen for six straight months. According to a survey of 1,420 small and medium-sized companies by the Korea Federation of Small and Medium-sized Businesses, average operation ratio stood at 69.2% in July, up 1% from June.

The ratio fell to 63.9% in February before rising for six straight months. In July it recovered to the same level it was in July 2008. Automobile production continued to increase thanks to expectations of an economic recovery. The launches of new models and export of electronic products such as LCDs rose, also contributing to a higher operation ratio in July the Korea Federation of Small and Medium-sized Businesses announced.

Operation ratio’s rose in 14 industries, including a 3.7% rise in the leather, bags, and footwear industries, a 2.7% rise in rubber and plastic products and a 2.6% rise in transportation equipment.

The portion of companies with operation ratios of 80% or higher rose to 37.7% in July up from 35.4% in June.

In general, industrial sites are now stepping up production. After being forced into reducing production in December 2008, LCD factories are now expanding lines to meet rushing orders. LG Display is increasing its eighth-generation production lines while also building a factory in China. Samsung Electronics meanwhile is pushing forward with plans to expand production lines in Korea and build a panel factory in China.

According to Display Search, global LCD TV panel shipments in July totaled 13.53 million units, almost double that of January. LCD panel manufacturers began reducing production in the fourth quarter of last year after suffering sluggish sales and a price drop due to the global economic crisis.

However, in the first quarter of this year, the TV market began to recover. Accordingly, LCD TV panel shipments reached 10.71 million units in April, and have continued to rise ever since.

Samsung Electronics shipped 1.65 million units in January and 3.68 million in July. According to DisplaySearch, Samsung Electronics’ market share stood at 23.9% in January, slightly less than LG Display’s 28.1%. However, by July, Samsung Electronics marked 27.2%, higher than LG Display’s 21.8%.

LG Display recorded shipment of 1.94 million units in January and 2.95 million in July. Meanwhile, Taiwanese panel manufacturers lowered operation ratios to less than 50%. CMO shipped 1.19 million LCD panels in January and 2.49 million in July, while Sharp of Japan shipped 850,000 units in January and 1.23 million in July.

The semiconductor market is showing a clear sign of recovery, that being an increase in production. According to semiconductor market research organizations, a one-giga DRAM DDR2 667 in August was US$1.34, an increase of 10%. With a decrease in semiconductor inventories, prices and production are rising.

In terms of sales, Samsung Electronics and Hynix accounted for 34.1% and 21.4%, respectively. This means Korean companies enjoy a 55.5% market share. The operation ratio of the world’s semiconductor industry in the second quarter stood at the 70% level. Samsung Electronics marks an operation ratio of 94%, Hynix 72%, Elpida of Japan 87% and Taiwanese companies, 40~50%.

Korean automakers are also being revitalized. In August, five Korean automakers continued to enjoy an increase in sales from the year before, both at home and abroad. They sold a total of 397,212 units (90,808 at home and 306,404 abroad) in August. This is an increase of 13.4% in domestic sales and a 7.7% increase in overseas sales.

In particular, Hyundai and Kia set a new record selling more than 100,000 units in the U.S. market during August. Hyundai sold 60,467 units in August, a 47% increase from a year earlier while Kia sold 40,198 units, a 60.4% rise from the year before. Steelmakers have begun to increase production thanks to an increase in demand both at home and abroad as well as a decrease in inventories and a rise in prices.

POSCO began to decrease production at the end of last year for the first time in its corporate history, dropping to 25% production by the first half of this year. However, the company recently finished repairs on a furnace and entered into 100% operation.

The petrochemical industry is also showing signs of a recovery. Overseas manufacturing companies including Chinese companies are raising operation ratios faster than expected. The Purchasing Manager’s Index (PMI), which looks at the economic conditions of the manufacturing industry, fell below 35 in January before rising to 53.1 in August.

In China, the index fell below 40 in October 2008 before climbing to 54 in August 2009. These figures are clear indications that the manufacturing industry is regaining vitality.