Hana Financial Research "Next Year, Auto and Shipbuilding Rise, Petrochemicals and Shipping Slump"

2024 General Industry Outlook Report

Next year, while the domestic core industries of automobile and shipbuilding are expected to continue steady growth, the petrochemical and shipping industries are forecasted to remain sluggish due to China's economic downturn and weakened demand.

Photo of Pyeongtaek Port./Photo by Hyunmin Kim kimhyun81@

Hana Financial Management Research Institute released a report titled "2024 General Industry Outlook" on the 18th containing these insights.

The institute analyzed that the domestic industry is exposed to three major environmental changes in the mid-to-long term: ▲limitations of China's high growth ▲strengthening of global environmental regulations ▲adaptation to digital technologies, and predicted that actively responding to these changing environments will be essential to maintaining global competitiveness.

The institute particularly diagnosed that China's future long-term growth rate is inevitably slowing down to about half of the pre-COVID-19 pandemic (global pandemic) level of 7.9%. This is due to President Xi Jinping's third term, which has seen strengthened state control and increased regulations on private companies such as real estate, big tech, and private education, compounded by global supply chain fragmentation and conflicts with the West.

Such a slowdown in China's growth, weakening purchasing power, and increased financial volatility are expected to impact the global economy and industrial structure, with especially significant effects on domestic industries highly dependent on China.

Accordingly, the institute expects the automobile industry among core sectors to benefit. Although the Chinese automobile industry will continuously seek global expansion, access to large markets such as the United States and India, with which there are conflicts, is expected to be limited.

For domestic automobile companies, possessing sufficient electric vehicle (EV) product competitiveness, facing fewer obstacles to entering markets like the U.S. and India, and having relatively sound financial investment capacity, they are expected to actively enter large markets that are difficult for China to penetrate, thus gaining a favorable position.

In the case of the shipbuilding industry, it is expected to benefit from strengthened global environmental regulations. The International Maritime Organization (IMO) decided last July to strengthen its carbon reduction target from the existing 50% to 100% by 2050 to fully realize carbon reduction, which is anticipated to expand orders for eco-friendly ships such as liquefied natural gas (LNG) and methanol-powered vessels.

Based on recent order performance, the proportion of eco-friendly ship orders by domestic shipbuilders exceeds 50%, with China taking on supplementary orders due to production capacity limits. This is expected to significantly contribute to the mid-to-long-term structural improvement of the domestic shipbuilding industry.

On the other hand, the petrochemical sector is expected to see a decline in exports of domestic products due to China's expansion of its own production capacity and intensified regional competition between Chinese and domestic products. By 2030, domestic petrochemical product exports are expected to revert to 2010 levels.

In particular, China's facilities apply the Crude Oil To Chemical (COTC) process, which produces products directly from crude oil, unlike Korea's naphtha-based process, giving Chinese products a price competitiveness advantage over domestic products.

The shipping industry is also expected to be negatively affected by China. The slowdown in China's economic growth is projected to reduce maritime transport demand and shorten shipping distances. Especially, intensified U.S.-China conflicts will inevitably decrease cargo volumes on Pacific routes, which domestic shipping companies heavily depend on, raising concerns about performance declines due to freight rate drops.

The refining industry, one of the core sectors, faces a similar situation. Domestic oil demand is predicted to peak in 2025, making urgent structural improvements such as transitioning to eco-friendly businesses necessary. The industry has begun focusing on eco-friendly sectors such as petrochemicals, batteries, hydrogen, recycling, and bioplastics in response, and as a result, the share of the core refining business is expected to shrink from 77% in 2023 to 45% by 2035.

Regarding the foundational industries, an analysis suggested that digital transformation will accelerate, providing a turning point. Foundational industries refer to six sectors forming the basis of manufacturing, including casting, mold making, and welding.

Although digital transformation in foundational industries has been slow, it is expected to expand due to falling prices of robots and sensors and government policy support. Since foundational industries are essential for maintaining the competitiveness of the domestic industrial sector, digital transformation is anticipated to improve chronic labor shortages and efficiency issues, enabling sustained growth in both digital industries and traditional manufacturing.

The construction industry is also predicted to improve efficiency with the introduction of advanced construction methods integrated with digital technologies. It was pointed out that construction generally has low labor efficiency globally as well as domestically, and modular construction methods and three-dimensional (3D) printing techniques are emerging to address this.

Furthermore, through digital integrated management such as Building Information Modeling (BIM), efficient management throughout the building lifecycle is expected. The digital transformation of the construction industry is anticipated to cause changes in the construction industry ecosystem, such as an expansion in the share of related digital service industries.

The institute also presented the 2024 outlook for 12 major industries focusing on these mid-to-long-term industrial trends. While an overall recovery in domestic industries is expected next year, it is forecasted that most industries, except for secondary batteries, automobiles, and shipbuilding, will show recovery based on base effects, making dramatic improvements unlikely.

In the materials and components sector, only the secondary battery field is expected to have a positive business environment in both scale and profitability, supported by a stable order backlog, while the petrochemical sector is feared to experience a harsh recession next year due to the triple challenges of demand contraction, high oil prices, and oversupply.

The digital business sector is expected to show clear improvement compared to this year, but sales price weakness is anticipated to continue. Besides base effects, the transition to high-priced products such as DDR5 and OLED is expected to somewhat contribute to performance improvement.

In the transportation sector, both automobile and shipbuilding are forecasted to have favorable performance. Despite negative sales conditions in export markets, the automobile industry is expected to maintain a good trend thanks to improvements in domestic car product competitiveness.

Shipbuilding is also expected to achieve stable growth due to eco-friendly ship orders and increased ship deliveries. Meanwhile, the retail distribution industry is expected to recover moderately due to improved consumer sentiment and product demand, and the construction industry is anticipated to recover only limitedly in the housing construction sector led by the government.

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