Semiconductors Thrive While Chemicals Struggle: July Manufacturing Outlook

Semiconductors and automobiles are driving expectations for a recovery in the manufacturing sector, while the chemical and steel industries continue to face challenges. Amidst mixed fortunes across sectors, the outlook for manufacturing in July is expected to remain above the baseline, indicating a gradual recovery.

The Korea Institute for Industrial Economics and Trade (KIET) announced on June 21 that a survey of 129 industry experts conducted from June 8 to 12 resulted in a July manufacturing outlook PSI of 103. Although this is lower than the previous month's forecast of 107, it remains above the baseline of 100.

The PSI is an index that gauges the opinions of industry experts on the state of the economy, demand, production, and profitability, with scores ranging from 0 to 200. A score above 100 indicates that more respondents expect improvement compared to the previous month, while a score below 100 suggests a decline.

In detail, the domestic outlook PSI stands at 102, and exports are at 110, both exceeding the baseline. Production levels are also projected to improve, with a PSI of 106.

By sector, semiconductors recorded the highest PSI at 161. The automobile (107), machinery (113), and electronics (113) sectors also exceeded the baseline, indicating continued optimism for improvement.

Notably, the semiconductor sector is benefiting from increased demand for artificial intelligence (AI) chips and a strong market for high-bandwidth memory (HBM). The automotive sector is seeing an uptick due to a recovery in global sales and strong export performance.

In contrast, the chemical (72), steel (78), and shipbuilding (93) sectors are projected to remain below the baseline, indicating ongoing struggles.

However, analysts caution that the overall sentiment in manufacturing has not yet entered a clear recovery phase. The current manufacturing PSI for June is 99, reflecting an 8-point drop from the previous month’s 107, slightly below the baseline.

In terms of specifics, domestic demand (105), exports (116), and production levels (110) are all above the baseline, but inventory levels (97) have fallen below the baseline for four consecutive months.

By type, the ICT sector scored 113, exceeding the baseline, while the machinery sector reached 102, recovering above 100 for the first time in three months. Conversely, the materials sector plummeted to 85, a 22-point drop from the previous month, highlighting the stark differences in performance across industries.