Why South Korean Manufacturing Activity Rose in June 2017

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Why South Korean Manufacturing Activity Rose in June 2017

By Mary Sadler, Market Realist, Aug 1, 2017

South Korea Manufacturing PMI

The South Korean (EWY) Manufacturing PMI (Purchasing Managers’ Index) rose to 50.1 in June 2017 compared to 49.2 in May 2017. After a year of contraction, manufacturing activity in June 2017 saw an expansion as the PMI reached above the critical mark of 50. The rise in new work orders mainly helped raise the PMI above 50 in June 2017.

South Korean manufacturing and services productions are likely to increase overall in 2017, according to South Korean government data. Manufacturing production is expected to be driven by products such as semiconductors, display panels, and petrochemicals and oil refining in 2017.

In the graph below, you can see the South Korean manufacturing PMI over the past year.

Manufacturing activity in June 2017

The manufacturing sector in South Korea (KORU) saw a slower rise in spite of increased new work orders, mainly due to a reduction in output and employment. External factors such as reduced demand from China (FXI) impacted the manufacturing activity in June 2017. Production volumes continued to fall in June 2017 following the contraction trend over the last 12 months.

New work orders

New work orders grew for the first time in June over the last 12 months. The overall rise in new work indicated an optimism in the manufacturing sector, which reached a 14-month high in June 2017. The improved forecast for output and demand has also helped increase purchasing activity in June 2017. The slight improvement in overall demand and new product launches helped the manufacturing PMI in June 2017 move into the expansion territory.

Demand from China

New work orders grew with improvements in demand from Japan (EWZ), the Middle East, and the United States (SPY) in June 2017. However, the consistent weakness in China’s (FXI) demand seemed to impact the overall demand in the manufacturing sector in South Korea.

Purchasing activity and price pressures

Input prices and product prices continued to remain flat in June 2017 as a rise in raw materials was offset by stronger domestic currency and a fall in commodity prices. Manufacturers didn’t increase product prices for a second consecutive month due to the highly competitive market.

Expectations

The manufacturing sector in South Korea is seeing improved optimism in June 2017 as economic activity is expected to pick up in the next 12 months. The iShares MSCI South Korea Capped (EWY), which tracks South Korean equities, has risen about 3.0% in July 2017.

Ref. Mary Sadler, Market Realist, Aug 1, 2017

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