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Basic Materials Industries
in Korea
Steel
This section covers steel mill products which include crude
steel, finished and semifinished products. Finished products are generally
divided into three segments: long products, flat products and casting and
forging products.
In 1997, steel production and exports rose while domestic
demand slowed down. The steel industry faced a sluggish business performance and
its difficulties were exacerbated by the bankruptcies of three large steel
makers, Sammi Steel, Kia Steel, and Hanbo Iron & Steel Co. The slowdown in
the domestic consumption of steel is attributed to the decreasing demand of
major steel consumption industries, including engineering and construction,
automobiles, electronics, and machinery. Steel exports increased in 1997 due to
the expansion of capacity.
Steelmakers expanded their capacity in 1996 and were able to
raise their operation ratios. The resultant swell in steel production since the
expansion was completed is one cause for the reduction in steel imports in 1997.
Imports were also down due to the drop in domestic demand.
The consumption of steel reflects the development drive of the
economy. Domestic steel consumption will remain sluggish in 1998, chiefly
because of the country's economic depression and the shrinking investment of
both public and private sectors. Furthermore, under the current economic
adjustment program, the shrinkage of equipment and construction investment will
magnify the scope of the fall in domestic demand.
Exports of steel will increase and imports will decrease in
1998 because of production capacity expansion and the demand slowdown. The
effect of the drop in steel prices means that the increase in export volume
cannot maintain the previous levels of export value. Presently, steelmakers are
trying to expand the exports of steel in connection with other relevant
industries including engineering and construction services.
The increase in exports will be limited, since the sluggish
Southeast Asian and Japanese markets will undermine overseas shipments. In
contrast, Korean makers will be able to succeed in other Asian export markets.
The condition of the North America and EU steel markets are expected to be
favorable, but the tightened restraints and commercial pressures on these
markets may temper the positive outlook.
On the supply side, production is expected to decrease in
1998. In recent years, the production capacity has been increasing and
steelmakers plan to start production of new facilities this year. Hence, in
light of the slack demand, the increased production will result in the increase
of inventory or fall in the operating ratios.
Imports will decrease by virtue of the increase in production,
the slowdown of domestic demand, the high steel import prices and the decrease
of semifinished product imports. In addition, due to the depreciated won and the
rise of the steel scrap import price, electric arc furnaces' competitiveness
will be weakened.
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Nonferrous Metals
The nonferrous metal industry provides basic materials,
such as copper, aluminum, lead, zinc and metal alloys to many kinds of
industries including the electronics, shipbuilding, automotive, machinery and
chemicals industries.
Production and consumption of the nonferrous metal industry in
Korea increased during the first half of 1997 by virtue of speculative demand
and the operation of increased facilities. Domestic demand, on the other hand,
has decreased drastically in accordance with business inactivity. Meanwhile,
re-exports were on the rise, thus lowering the inventory of already imported
materials.
By sector, domestic demand and imports of electric copper
increased in 1997, influenced by speculative demand, that is, buying in order to
avoid an expected future increase of the copper price. While production of lead
ingot has increased with the renewed operation of QSL facilities, domestic
demand has been stagnant because of the dull market for battery manufacturers
and the automotive industry. For zinc ingot, domestic demand was expected to
rise drastically, influenced by the establishment of more galvanized sheet
manufacturers-the major demand source-but declined counter to expectations
because of the bankruptcy of Hanbo Steel Co., and the recession that swept
across the construction business. Speculative demand of aluminum caused
increases in its import in the first half of 1997, but caused drastic decreases
of domestic sales because of economic stagnation in the second half of the year.
Given slumping demand in the electrical and electronic,
automotive and construction industries, domestic sales of nonferrous metals will
confront a dismal market in 1998. After 1998, sales are expected to start
recovering. The devaluation of the Korean Won has shifted the emphasis to
exports instead of the domestic market in order to benefit from the capacity
expansion. Even so, Korea's major exporting countries in Southeast Asia are
weighted by their slowed and troubled economies.
Production of electric copper is expected to increase in 1998
by influence of the extension of facilities. Sales of this product will face a
decrease according to the demand reduction from Korea Electric Power Corp. and
Korea Telecom, the two largest users. These companies are under the influence of
budget constraints resulting from overall economic inactivity. Therefore,
accumulated inventory stemming from poor domestic sales will boost exports.
Electric lead will show steady growth in its production
capacity as the repair of facilities nears completion and operations are
reinvigorated. Only moderate increases in electric lead's production volume will
occur as a result of the dull domestic market. Recycled lead production will
significantly decrease because of the shortage in the supply of waste batteries.
Imports of lead will drop faced with weak domestic consumption and the worsened
Won/US$ exchange rate.
Zinc production will rise as the expanded facilities start
operating. New establishments and extended facilities of the galvanized sheet
manufacturers are underway. Export volume will increase drastically as the
output will significantly increase while domestic sales will be relatively
depressed. The import of low-quality zinc ingot, on the other hand, is to
slightly increase from China, Russia and Kazakhstan.
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Cement
The cement industry is closely linked to the construction
industry and also supplies cement to the private and public projects involved
with building infrastructure. The Korean cement industry is formed of nine
enterprises producing over 100 thousand tons in 1997.
With the booming construction industry and the expanding
infrastructure, the Korean cement industry has recorded a high growth rate for
the 1985-1994 period. But the growth rate of the cement industry has declined
considerably after the housing construction in new cities, including Ilsan and
Pundang, was completed in late 1995.
Domestic consumption for cement, having recorded a high annual
average growth rate over 10 percent since the mid-1980s, slowed down
considerably owing to the contraction of the construction market influenced by
the string of bankruptcies of large firms and the influence of the economic
adjustments starting in 1997.
The 1995 construction project completions and declining growth
rate of GDP from 1996 have contributed to the reduced cement production growth
rate. In 1997, cement production recorded an especially low growth rate in
response to the rapid cooling of the construction business following the call
for IMF intervention in the financial crisis. This occurred in spite of the
expanding facilities of cement companies. Since the early 1990s, cement exports
have declined sharply due to the decreasing inventory available for exports
resulting from the supply shortage of cement brought on by the sharp increase in
domestic consumption.
The rapid increase of cement imports in answer to excess
demand in the early 1990s, has been followed by a considerable import decrease
brought about by the fall in cement consumption since 1993. In 1997,
particularly, the import volume slipped due in large part to the rise of import
prices stemming from the rapid rise of the Korean Won against the U.S. dollar.
This reality exists in spite of the imports enlargement policies of the
government.
Korea's cement industry, facing a continued shortage of supply
from the late 1980s due to the sharp increase of domestic consumption, is
expected to show excess supply from 1998 to 2000. This is because cement
consumption will decrease more than cement production.
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Petrochemicals
The petrochemical industry includes basic petrochemicals
such as ethylene, propylene, butadiene, benzene, toluene, xylene, intermediates
such as o-xylene, p-xylene, SM, VCM, PO, EO et cetera, synthetic resins,
materials for synthetic fiber and synthetic rubbers.
The Korean petrochemical industry recorded impressive growth
in 1997 with the aid of a high increase in exports and the expansion of
production capacity. This growth occurred despite a general recession in the
national economy last year. Profits are estimated to have decreased, however, as
a result of the rise in raw materials prices and oversupply in the world
petrochemical industry. In 1997, domestic demand in the petrochemical industry
achieved about an 11 percent increase over 1996. In particular, the domestic
demand of materials for polyesters such as TPA and EG recorded a comparatively
high growth rate due to the high increase of exports in the textile industry.
Production marked a growth of 21 percent over 1996 as synthetic resins plants
and materials for synthetic fiber plants of a total 2.4 million M/T completed
during the end of 1996 and 1997 started operating in 1997.
Exports increased by 36.6 percent over 1996 due to the
expansion of the production capacity in materials for synthetic fibers and
synthetic resins. In particular, exports of materials for synthetic fibers such
as TPA increased sharply. Imports remained at the 1996 level as a result of the
expansion of capacity in materials for synthetic fibers, especially TPA, and EG,
among others. The United States and Japan accounted for over 70 percent of total
imports.
Stagnation is forecasted for the Korean petrochemical industry
in 1998 as domestic production slows down as a result of the national economic
recession and the expansion of production capacity in the world petrochemical
industry. The volume of production and exports in Korea, however, will continue
to increase as petrochemical plants completed at the end of 1997 start operation
in 1998. It is estimated that domestic demand in 1998 will record a negative
growth rate for the first time since 1970.
Exports are forecasted to increase about 10 percent over 1997
due to enhanced international competitiveness resulting from the depreciation of
the Korean currency. Another contributing factor is the increase in export
volume available resulting from firms' export-promotion strategies.
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Fine Chemicals
The fine or specialty chemical industry includes
pharmaceuticals, pesticides, cosmetics, dyestuffs and organic pigments, paints
and printing inks, adhesives, catalysts, and some other high value-added
chemicals.
The Korean fine chemical industry started to develop in full
force in the mid-1970s largely by dint of the import of technology from the
advanced countries. The industry has rapidly grown by over 10 percent annually
since the early 1980s. The industry was stimulated by the extraordinary growth
rate of the whole economy and the government's import-substitution policy,
implemented until the 1980s.
The domestic demand for fine chemicals has substantially
increased, and amounted to US$ 20.4 billion in 1996. Production reached
approximately US$17.4 billion in 1996, showing a rise of 12.7 percent over the
previous year. The key engines for the rapid growth of the production are
pharmaceuticals and cosmetics which, being final consumer goods, have greatly
increased in line with the decades-long rise of per capita income. Dyestuffs and
paints have also experienced healthy growth. As intermediate goods, the latter
have assisted in the development of other related industries such as textiles
and construction.
With respect to exports, a fast-paced increase in exports is
represented by the US$1.4 billion in exports recorded in 1997. The ratio of
exports to production edged up to 8.8 percent in 1997, a figure which was only
3.8 percent in 1990. A full 44 percent of the total exports went to the
Southeast Asian region.
In spite of the remarkable, quantitative development, the
production structure of the Korean fine chemical industry remains qualitatively
far behind that of the advanced countries. That is to say, most of the
production consists of relatively low value-added final products while most of
the high value-added core inputs are imported owing to the low level of
technology.
The trade structure reflects the above-mentioned production
structure. Most of the exports consists of final, common goods while most of the
imports consists of high technology intermediate goods. As a result, the
industry has suffered from a massive trade deficit. The trade deficit recorded
US$2.9 billion dollars in 1997. The ratio of the imports to the domestic demand
reached 23 percent in 1997, and, especially in the case of intermediate goods,
the ratio has remained at 60 ~ 70 percent in the past few years.
The industrial organization of fine chemicals mainly consists
of small and medium-sized enterprises. The ratio of large firms employing more
than 300 employees to the total firms remains at about 4 percent. Recently,
however, there has been a trend where some large firms in the production of low
value-added chemicals such as petrochemicals and fertilizer enlarged their
business scope into high value-added chemicals by entering the fine chemical
industry. It is thought that as a result of the restructuring of the chemical
industry, the activated entry into the fine chemical industry by some firms in
the field of common products on the one hand, and the inflow of venture capital,
on the other, will positively affect the recovery. In the mid- to long-run, the
Korean fine chemical industry is expected to grow continuously owing to
producers' drive for self-sufficiency in specialty chemicals.
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Information
provided by the Korean Embassy
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