Of South Korea’s mainstay export items and backbone industries, auto and shipbuilding are the only sectors with positive outlook in the second half of this year, while recovery in steel and semiconductor sectors won’t likely come any time soon, analysts said on Monday.
During an industry outlook seminar for the second half of 2019 organized by the Federation of Korean Industries, one of Korea’s five largest business associations, on Monday, brokerage analysts monitoring Korea’s six major industries projected that the automobile and shipbuilding sectors will see earnings recovery in the remaining year, but steel and semiconductor industries would continue to struggle amid intensifying trade war between the United States and China and slowing global economy. The outlook for petrochemical and electronics sectors remain mixed.
In the semiconductor sector, analysts forecast that demand for data center server-use dynamic random-access memory (DRAM) chips would slowly pick up, but their prices and exports are expected to extend their losing streaks in the second half of this year due to mounting inventories.
Adding woes to the country’s chip makers, Beijing’s anti-monopoly probes on Korea’s two biggest chip makers Samsung Electronics Co. and SK Hynix Inc., as well as Micron Technology Inc. show no sign of ending, while the global NAND flash memory chip sector is grappling with oversupply. The non-memory sector that Samsung Electronics has vowed to nurture as its new growth engine is expected to see tangible growth opportunities only after next year, analysts warned.
Korea’s steel industry will also remain weak in the second half of this year as profitability will likely deteriorate due to rising raw materials costs. Analysts noted that the prices of iron ore raw materials have surged as a result of a devastating dam collapse in Brazil and tropical cyclone in West Australia. The rising costs also pressure the industry as a result of China’s increased production of crude steel, analysts said.
The outlook for Korea’s electrical and electronics sector remains mixed as the U.S.’s continued sanctions on China’s Huawei is expected to delay the building of global fifth-generation (5G) infrastructure such as communications network. In the short-term, however, analysts predicted that a setback in Huawei’s smartphone exports could benefit Korean rivals.
When it comes to petrochemical products, the refining margin is below the break-even point. Analysts projected the recover in demand would be slow but supply is expected to surge following a surge in U.S. shale gas production.
Nevertheless, demand for high value-added petrochemical products is expected to rise in the second half of this year ahead of the new emissions regulations by the International Maritime Organization taking effect in 2020 that caps sulfur content in marine fuels.
Korean shipbuilders are forecast to see an improvement in earnings in the second half of this year as the industry-wide restructuring is near to end, analysts said. A rise in demand for liquefied natural gas (LNG) is also expected to give a boost to the industry. However, demand for machinery softening due to the slowing economy in China.
Korea’s automobile industry is also projected to continue to see recovery on the back of brisk sales in Korea and the U.S. Carmakers, partly offsetting the falling demand in China, analysts said.
By Lim Hyung-joon and Lee Eun-joo
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