Economy
Automobile, chemical, refinery lead manufacturing sector revival
Analysts attribute portfolio diversification and aggressive investment to the upturn
By Apr 03, 2022 (Gmt+09:00)
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![Samsung Electronics Vice Chairman Han Jong-hee (Courtesy of Samsung Electronics Co.)](https://www.kedglobal.com/data/ked/image/2022/04/03/ked202204030002.700x.0.jpg)
South Korea’s manufacturing sector saw an unexpected revival during the economic downturn caused by the COVID-19 pandemic.
Last year, 23 firms in the manufacturing sector posted more than 1 trillion won ($820 million) in operating profit each, according to an independent analysis of annual reports of the top 100 companies in the sector by The Korea Economic Daily.
The data was compiled by the Financial Supervisory Service, South Korea’s financial watchdog.
The year prior, only 11 companies in the manufacturing sector were included in the 1 trillion won operating profit club.
Samsung Electronics Co. enjoyed the heftiest operating profit at 51.6 trillion won. SK Hynix Inc. and POSCO followed with 12.4 trillion won and 9.2 trillion won, respectively.
The country’s top automaker Hyundai Motor Co. saw 6.7 trillion won in operating profit.
Twelve firms either entered the 1 trillion operating profit club for the first time or re-entered it last year. They include: Kumho Petrochemical Co.; S-Oil Corp.; SK Innovation Co.; LG Innotek; Korea Zinc Co.; and Samsung SDI Co.
The total operating profit of 100 manufacturing firms reached 132.9 trillion won, a whopping 91.6% surge from the 69.4 trillion won of the year prior.
The rate of increase was more than 8 times that of 2020, which stood at 11.6%.
The traditionally strong businesses have fared well during the pandemic. By industry, electronics enjoyed the highest operating profits, followed by chemical, steel, automobile, and oil refinery.
With even growth across the sector, Samsung Electronics' stake in the overall manufacturing arena fell to 38.9% from 51.9% the year prior. Analysts describe the trend as a slowdown in the “optical illusion caused by Samsung Electronics.”
The overall market forecast is that this year’s profit is not going to match last year’s.
“The rise of raw material prices, the weakening won, and the global supply bottleneck will negatively impact profitability,” an analyst told The Korea Economic Daily.
Only the cement and shipbuilding industries saw decreased operating profits between 2020 and 2021.
![Hyundai Motor Company's flagship electronic vehicle Ioniq 5 (Courtesy of Hyundai Motor Company)](https://www.kedglobal.com/data/ked/image/2022/04/03/ked202204030001.700x.0.png)
The rate of increase in the manufacturing sector’s overall operating profit is even steeper when leaving Samsung Electronics out of the mix.
The 99 companies in manufacturing – minus the electronics juggernaut – saw a combined operating profit of 81.3 trillion won, a 143.5% jump from the year prior’s 33.4 trillion won.
This is in sharp contrast to 2020, when the combined operating profit of the 99 top manufacturing companies without Samsung Electronics declined 2.9% from the year prior due to the pandemic-induced economic slump. That is when the term “optical illusion caused by Samsung Electronics” was coined.
The electronics giant had a good performance last year. As mentioned earlier, its operating profit stood at 51.6 trillion won, a 43.5% jump from the year prior – and close to its record high of 58.9 trillion won seen in 2018.
Even still, its operating profit only accounted for 38.9% of the combined figure of 100 top firms in the manufacturing sector. That is more than a 10 percentage point slide from the previous year.
FIRST-TIER COMEBACK
The automobile, chemical, and oil refinery industries led the revival.
The secondary cell or rechargeable battery makers and biotech firms also strengthened their positions as the next big things in the manufacturing sector. The industries’ operating profit increased 1.7 trillion won and 1.4 trillion won, respectively, compared to the year prior.
The shipbuilding industry suffered losses, however, hit by rising production costs.
The three largest shipbuilding companies, namely Daewoo Shipbuilding & Marine Engineering Co., Korea Shipbuilding & Offshore Engineering Co., and Samsung Heavy Industries Co. each suffered more than 1 trillion won in operating losses.
“There will be meaningful improvement in this year’s performance, thanks to securing orders for more than two years,” an industry insider explained, citing renewed demand for shipbuilding.
Write to Kyung-Min Kang at kkm1026@hankyung.com
Jee Abbey Lee edited this article.
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