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Soaring inventories signal looming economic downturn

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By Park Jae-hyuk

Korea's leading companies saw a 50 percent year-on-year increase in their inventories during the first half of this year, signaling the beginning of an economic recession, data showed Tuesday.

According to market tracker Leaders Index's analysis of regulatory filings of the nation's 500 largest companies, 192 firms that have disclosed their inventories showed that their combined inventories rose to 147.6 trillion won ($110 billion) during the first half of this year from 98.6 trillion won a year earlier.

"Considering Korea's significant reliance on trade, soaring inventories overshadow the country's economy," said Kim Dae-jong, a professor at Sejong University's School of Business. "Korean companies should try to reduce their inventories, in order to brace for the economic downturn over the next two years."

Among them, 26 companies in the petrochemical industry faced the sharpest rise, due to the soaring international prices of raw materials. Their combined inventories increased 71 percent year-on-year to 28.3 trillion won from 16.5 trillion won.

In the energy sector, inventories at SK Lubricants and SK Innovation rose 170 percent and 98 percent, respectively, while GS Caltex and LG Chem showed respective increases of 74 percent and 73 percent.

Electronics companies experienced the largest increase, as their combined inventories rose to 50 trillion won from 31 trillion won. Samsung Electronics' inventory went up to 32.7 trillion won from 19 trillion won, while another Korean chipmaker, SK hynix, saw an increase to 2.3 trillion won from 1.4 trillion won.

Five trading companies, including POSCO International, LX International and GS Global, faced a collective 67.2 percent year-on-year rise to 5.8 trillion won from 3.5 trillion won the previous year. POSCO Holdings, Hyundai Steel, KG Steel and eight other firms involved in the steel industry saw a total 14.1 trillion won, up 66 percent year-on-year from 8.5 trillion won.

In contrast, the automotive and retail sectors showed lower-than-expected increases in their inventories. Hyundai Motor's inventory rose 9.6 percent year-on-year to 7.6 trillion won from 7 trillion won, while its sister company, Kia, saw a 10.1 percent year-on-year increase to 6.2 trillion won from 5.6 trillion won.

Nine IT services firms showed a 71 percent year-on-year increase to 6 trillion won from 3.5 trillion won.

Among the 192 companies, NCSoft showed the sharpest increase of 793.3 percent, followed by LIG Nex1 with 460.4 percent, Samsung Biologics with 318.3 percent, GS E&C with 314.2 percent and Hansae with 193.2 percent.

"Due to the rising international prices of raw materials and the economic downturn, inventories in the energy, petrochemical, steel and electronics sectors rose over 60 percent, while the automotive industry showed less than a 20 percent increase," Leaders Index said in a press release.

Park Jae-hyuk


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