After a year of prolonged economic downturn and a major drop in exports in 2015, South Korea faces another grim outlook in 2016 as most of its major industries are forecast for sluggish growth.

Though Korea’s overall trade will slightly grow, its net export volume will increase by just 2.1 percent this year, according to the Korea Institute for Industrial Economics & Trade.

The state-run Korea Development Bank expects a general recession of the domestic economy to continue into the new year as the country’s major businesses experience only a “mild recovery,” with “slight variances in performance by sector” in 2016.

Steel, automobiles, shipbuilding

The steel industry, which is experiencing a continued downturn, is set for another difficult year as KDB predicts “little or no growth” in the business sector.

The segment will “retain a similar domestic sales volume in 2016 as the year before, and a slight increase in exports, which will remain minor at under 1 percent,” KDB said.

Korean steelmakers are expected to “face more fierce competition from Chinese exporters and expanded protectionist policies for steel around the world,” hampering exports.

Despite upward demands from developing economies, KDB predicts the Korean automobile sector will see only “a slight growth in exports amid a slowdown among importing economies, stagnant domestic production and the weakening of the yen and euro.”

Domestic sales will stand at around 1.52 million units, up by 3.8 percent compared to that of last year, while exports will increase slightly by 0.7 percent at 3.04 million units, KDB said.

After posting record-high losses last year amid a major drop in profitability due to plunging oil prices, Korea’s shipbuilding sector is geared for a continued downturn in 2016.

The value of total orders received by Korean shipyards declined from 18.7 million compensated gross tonnage in 2013 to 12.6 million CGT in 2014, according to Clarkson Research Services. The figure is expected to have fallen to 19.9 million CGT in 2015. CGT is a metric used to indicate the amount of work needed for shipbuilding projects.

Further drops in global oil prices will curtail the offshore plant construction business, leading the country’s major shipyards to post deficits in earnings this year.

Oil prices must remain over $70 per barrel for the offshore plant business to remain profitable, yet crude prices currently hover far below such levels at less than $40 per barrel, and are forecast to drop even further, possibly to around $20 per barrel in 2016.

Petrochemicals, refining

After swinging to recovery in 2015 thanks to low oil prices, Korea’s petrochemicals and refining sectors are set to continue benefiting from improved margins this year.

Low oil prices drive down the price of naphtha, from which petrochemicals are made, curtailing production costs and driving up demand. This is how naphtha cracking companies retained profitability in 2015 despite a decline in total exports.

“The petrochemicals sector will post a similar or a slightly downward performance in 2016, as long as crude prices remain relatively stable,” said the Korea Petroleum Association. “Rubber sales will improve while synthetic resins will see continued high demand.”

The Korea International Trade Association predicts Korea’s petrochemical exports will likely decline by around 0.4 percent, as countries such as China and India step up their production capabilities this year.

Korean refiners, which reportedly posted operating profits in 2015, are geared for a relatively positive outlook in 2016, as refining margins remain high amid an upward global demand for cheap oil products.

Mobile devices, semiconductors, display

Though faring relatively better than other industries, Korea’s mobile device sector is set for single-digit growth next year, amid slowing demand and increasing competition.

“Double-digit shipment growth is a thing of the past for vendors as the global market has begun to plateau in 2015 after years of growth” said TrendForce smartphone analyst Avril Wu.

KDB predicts domestic production will rise by 4.4 percent and exports by 7.3 percent in 2016 on the back of expanded exports of components manufactured overseas.

“While Samsung has kept its shipment title through the year, it is struggling against Apple in the high-end market and being pushed out of the mid-range and low-end segments by Chinese competitors,” Wu said.

The local semiconductor and display sectors, both highly vulnerable to fast-climbing competition from China, are both geared for a general downturn in exports this year.

The “DRAM memory chip market will shrink in size this year, though steady growth is expected in the NAND flash segment,” according to NICE. KDB predicts the industry to remain “stagnant,” as both demand and prices remain low.

Korean display makers will see their “exports decline by 1.8 percent in 2016 compared to the previous year, as China’s economic slowdown lowers demand and competition for market share intensifies,” according to KIET.

Pharmaceuticals, biotechnology, cosmetics

Pharmaceuticals, biotechnology and cosmetics -- considered Korea’s future growth engines -- are set to continue on an upward path following a successful year in 2015.

The year 2015 has been perceived as a “turning point” for the local biopharma segment, as Hanmi Pharmaceutical led the way in sealing mega drug technology export deals with major global pharma companies.

“Korea’s pharmaceutical segment is forecast to see domestic sales rise by 3 percent while export volume will grow, though in smaller scale compared to 2015, by more than 10 percent in 2016,” said Shinhan Investment Corp. analyst Bae Ki-dal.

“The pharma segment is rising up as one of the country’s new growth drivers,” said Bae, noting “pharmaceutical exports grew by 30 percent while Korea’s overall exports declined by 7 percent in 2015.”

The biotechnology segment will follow a path similar to that of the pharma segment, with future performance dependent on upcoming results of overseas clinical tests and technology exports, according to the Shinhan analyst.

Led by AmorePacific, which posted record-high revenues and operating profits in 2015, Korea’s cosmetic industry is geared for a bright outlook in 2016, as both domestic sales and exports to China and Southeast Asia are expected to remain high.

By Sohn Ji-young (jys@heraldcorp.com)