Posted on 03/02/2010 8:30:15 AM PST by TigerLikesRooster
Korea's Top 5 Industries Face Oversupply Crisis
Korea's major industries are at the great risk of being hit by oversupply problems in the global market. If automobiles, steel, petrochemicals, ships and semiconductors end up sinking due to a worldwide glut, the Korean economy is expected to face the greatest shock since the Asian financial crisis.
According to an internal Ministry of Strategy and Finance document obtained by the Chosun Ilbo on Sunday, the global automobile industry faced a 56.7 percent oversupply last year, while the steel industry was hit with a 37.7 percent glut. The oversupply ratio refers to the amount of production capacity that exceeds demand when production facilities are running at 100 percent. A ratio of 50 percent means there is enough production capacity to produce 50 percent more products than needed.
The ratios were 17.9 and 14.4 percent for the petrochemical and shipbuilding industries. In the semiconductor industry, the threat abated as the world's no.5 chipmaker Qimonda of Germany went bankrupt early last year, but still some products including NAND flash memory chips, a flagship item for Korea, are expected to face an oversupply.
These industries have propped up the Korean economy since the financial crisis last September. But as China and other emerging nations have increased investment in them to stimulate their economy, there have been growing concerns over worsening situations with rising productions, calling for urgent measures to deal with the problem.
◆ Worsening Supply Glut
There are fears that the global automotive industry would face the worst-ever supply glut this year. According to industry consulting agency Global Insight, demand is expected to total 66.1 million vehicles, while output capacity stands at 95.1 million, leading to a possible record oversupply of 29 million cars.
In the steel and petrochemical industries, advanced countries are either cutting down production facilities or keeping them at present levels. But emerging countries like China and the Middle East continue to expand production. The global supply capacity of steel is expected to rise 20.5 percent by 2020, from 1.66 billion tons to 2 billion tons. Ethylene is a chemical whose demand serves as an indicator of the prospects for the global petrochemical industry. Between 2008 and 2012, the Middle East accounts for 47 percent of new or expanded ethylene production facilities.
In the shipbuilding industry, global demand has dwindled following the global financial crisis. And due to the nature of the shipbuilding industry, where it takes around two years and six months from order to delivery, shipyards need to continue to expand capacity to complete orders. According to shipbuilding information provider Clarkson, the oversupply ratio is expected to surge to 91.7 percent in 2012.
◆ Impact on the Korean Economy
A number of Korea's leading industries suffered from oversupply in 2009, but that did not gain much attention as the focus was on the financial crisis. Last year, Korea's overall exports dropped 13.9 percent, with outbound shipments of cars declining 28.4 percent, steel 21.6 percent and petrochemical products 38.7 percent, which was much higher than the average drop.
"The government is looking into urging governments around the world at the G20 Summit to come up with a global solution for the oversupply problem," a ministry official said. "For a national strategy, Korea should look for industries other than the traditional top five that have driven growth since the 1970s."
automobile: 56.7%
steel: 37.7%
petrochemical: 17.9%
shipbuilding: 14.4%
semiconductor: it is OK for now, but not for long
Economy would remain in trouble for a long time.
Over-supply and over-capacity *always* lead to deflation, no matter how much currency anyone prints.
Deflation.
Always.
They should try Kash-for-Klunkers. It worked really well here. /sarc
Supply over produces demand, Prices go down.
Demand outstrips supply, Prices go up.
Simple........
4Q growth of 5.9% was because inventories were being replenished in the US. That was supposed to be a good thing, but I doubt it.
That's why we bought Gubmint motors and are holding congressional hearings on Toyota and soon to be Honda. Why do you think we forced Chrysler to be owned by Fiat?!
Fiat fer gawd's sake!
It had to catch up at some point.
The useful life of an automobile has doubled since the 70’s. If capacity has not adjusted for the amazing strides in improved quality and longevity, then Wharton, Princeton, and Yale have had their heads up their tailpipes.
It had to catch up at some point.
But nothing a few more rounds of Cash for Clunkers couldn’t fix...
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