Despite Economic Recovery, Manufacturing Inventory Rises... Bank of Korea Says "Not Due to Demand Slowdown"

Finished vehicles are waiting in the storage yard next to the export shipment dock at Hyundai Motor Company's Ulsan plant. [Image source=Yonhap News]

Although there is a global increase in demand for goods and a supply shortage, domestic manufacturing inventory in the second half of last year actually increased. However, since this inventory increase is not due to a demand slowdown as in the past, it is analyzed that inventory flow will stabilize during the economic recovery process.

On the 8th, the Bank of Korea explained in its report titled "The Recent Impact of Supply Disruptions and Infectious Disease Situations on Manufacturing Inventory" that "while global demand for goods has significantly increased, supply shortages have continued due to production disruptions and logistics delays, and domestic manufacturing inventory in the second half of last year rapidly increased."

Since the third quarter of last year, domestic manufacturing inventory has significantly increased, centered on automobile parts, semiconductors, metals, petroleum products, and chemical products. Generally, inventory decreases when supply slows and demand rises, but since domestic manufacturing inventory increased, the Bank of Korea described this as an 'unusual phenomenon.'

In this regard, the Bank of Korea explained that the decrease in shipments of intermediate goods due to non-memory semiconductor production disruptions had an impact. Production disruptions of non-memory semiconductors in the Southeast Asia region negatively affected the production of domestic and foreign finished cars and IT devices, leading to an increase in inventory of other intermediate goods produced domestically.

Additionally, in the case of steel and chemical products, the rise in product prices due to a sharp increase in international raw material prices led to a decrease in shipments, contributing to inventory growth. In fact, the prices of major raw materials such as iron ore, coking coal, and crude oil rose sharply, reducing production volumes of steel and other products while prices rapidly increased.

Last year, as the spread of COVID-19 intensified and mobility decreased, sales of petroleum products such as diesel and gasoline also slowed. The Bank of Korea explained, "Unlike in the past when inventory increased due to demand decline mainly during economic slowdowns, recently inventory increased during the economic recovery period despite firm demand, due to supply disruptions and the spread of infectious diseases."

Considering this situation, it is difficult to interpret the recent inventory increase as indicating a future slowdown in the manufacturing economy. The Bank of Korea stated, "Although uncertainty regarding future inventory changes remains high, if global supply disruptions ease and the infectious disease situation improves, shipments of intermediate goods such as automotive parts are expected to recover, stabilizing manufacturing inventory flow."

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