South Korea’s manufacturing capacity shriveled by the fastest pace in the second quarter as companies delay investment due to cost-pushing policies of higher wages and shortened legal work hour and sluggishness in traditional heavy industries.

According to the Statistics Korea on Wednesday, the country’s industrial capacity index that measures activity against full factory capacity level retreated 1.1 percent in the April-June period against year-ago period, the biggest fall since the data has been compiled from 1971.

Korea’s manufacturing capacity for the first time ever fell 0.1 percent in the fourth quarter last year and has skidded ever since.

The reduced activity owes much to idleness in bulky dockyards as Korean shipbuilders continue to struggle despite recovery in global economy in the face of heavier competition from Chinese rivals. Offshore drilling facility orders, which used to fuel profit and growth for Korean shipyards stopped coming despite recovery in oil prices on waning price competitiveness against Chinese builders.

The capacity index for builders of processed metals including offshore plants declined for the past six consecutive quarters. It sank 7.8 percent in the fourth quarter of 2017, 5.3 percent in the first quarter, and 7.3 percent in the second quarter. The index will likely deteriorate further as Hyundai Heavy Industries will be shutting down its dock for offshore drilling facility from this month due to lack of work.

The index for transportation equipments that track the broader shipyards plunged 11.7 percent in the first quarter and 14.6 percent in the second quarter.

The chip making sector, whose capacity index surged around the 20 percent in the first half of last year due to aggressive investment, lost steam - gaining 1 percent to 2 percent in recent months.

Auto making capacity index slipped by the biggest-ever pace of 4.0 percent in the second quarter against the same period last year, due to sluggish sales at home and abroad.

The statistics office said the easing in production capacity index is not entirely negative as it can mean improvement in oversupply and productivity.

Factory utilization rate averaged 73.3 percent in the second quarter, improving from around 70 percent in the first quarter.

By Lee Yu-sup and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]