"Refining, Shipbuilding, and Automobile Sales in the Second Half Unlikely to Recover to Pre-COVID-19 Levels"

KEF Surveys Outlook for Second Half of 2021 in 9 Key Manufacturing Industries

Data provided by the Federation of Korean Industries

[Asia Economy Reporter Kim Heung-soon] Despite expectations that the sales and export figures of South Korea's key manufacturing industries will improve in the second half of this year compared to 2020 and 2019, some sectors such as refining, shipbuilding, and automobiles are forecasted to find it difficult to recover their sales to pre-COVID-19 levels.

The Federation of Korean Industries (FKI) conducted a "2021 First Half Performance and Second Half Outlook Survey" targeting policy department heads of associations in South Korea's main export industries. On the 19th, they presented the second half outlook based on a comparison of the management performance of nine key manufacturing industries over the past two years.

Refining: Delayed Recovery in Demand for Petroleum Products Centered on Aviation Fuel
Shipbuilding: New Ship Orders Reflected in Sales After 2-3 Years
Automobiles: Impact of Semiconductor Supply Issues and Weak Domestic Sales

According to the FKI, the refining sector is expected to experience negative growth due to delayed recovery in demand for major petroleum products, especially aviation fuel, caused by the prolonged COVID-19 pandemic. The shipbuilding sector's analysis takes into account the industry's characteristic time lag of about 2-3 years before new ship orders are reflected in sales. The automobile sector is projected to be affected by ongoing semiconductor supply issues for vehicles and relatively weak domestic sales.

On the other hand, semiconductors and petrochemicals are expected to see sales growth of over 20% compared to 2019. The semiconductor sector benefits from sustained non-face-to-face demand due to COVID-19, price increases, and expanding demand for server semiconductors used in large data centers. The petrochemical sector's forecast reflects the price increase effect from the sharp rise in international oil prices and the recovery in demand from upstream industries.

Additionally, biohealth (continued demand for COVID-19 diagnostic kits), home appliances (expanded sales of premium product lines due to increased 'stay-at-home' consumption), and textiles (continued demand for masks and other protective gear) are also expected to show slight improvements in performance compared to the second half of 2019.

Data provided by the Federation of Korean Industries

"Second Half Growth Rates for Major Manufacturing Industries to Be Lower Than First Half"
Sales Growth Slows Compared to Export Growth Due to Domestic Demand Contraction
Rising Raw Material Prices and Strengthened Environmental Standards Also Pose Risks

According to the FKI, the average total sales of nine key manufacturing industries in the first half of this year increased by 14.4% compared to 2020 and by 6.0% compared to 2019. Exports rose by 32.7% and 14.3%, respectively. For the second half, sales are projected to increase by 8.9% compared to 2020 and by 2.5% compared to 2019. Exports are expected to grow by 20.0% and 12.3%, respectively.

The FKI forecasts that the growth rate of key manufacturing industries' performance in the second half will be lower than in the first half. This is due to anticipated sluggish trade caused by a decrease in base effects and localized COVID-19 outbreaks such as the Delta variant, even if global demand expands. Furthermore, due to domestic demand contraction, the expected sales growth rate is predicted to be relatively lower than the export growth rate.

The biggest risk factor for key manufacturing industries was identified as "raw material risk (international oil prices, raw material supply, etc.)" accounting for 33.4%. This was followed by "policy risk" (18.5%), "labor risk" (11.1%), and "logistics and transportation risk" (11.1%). Policy tasks to strengthen the competitiveness of Korean companies overall included ▲expanding tax support for corporate investment activities (37.1%), ▲easing corporate regulations (22.2%), and ▲expanding labor flexibility and stabilizing wages (11.1%).

Yoo Hwan-ik, Director of Corporate Policy at the FKI, stated, "Domestic manufacturing companies face significant burdens as they prepare for the post-COVID era and respond to the carbon neutrality trend. Effective support measures for industrial restructuring and enhancing corporate competitiveness must be established, and related regulations should be eased."

This content was produced with the assistance of AI translation services.