hong kong taiwan korea industry monitor .... hotel occupancy / room rate forecast: continuing high...

HHOONNGG KKOONNGG・・TTAAIIWWAANN・・KKOORREEAA IINNDDUUSSTTRRYY MMOONNIITTOORR

(2012 First Half Issue) 2nd April 2012

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【Hong Kong】 Strong individual consumption expected amid slower overall growth HK’s real GDP grew rapidly by 5.0% YoY in 2011. Strong performance in individual consumption and service related sectors, such as retail and hotels, contributed to economic growth. However, quarterly figures showed continuous slowdown, with GDP grew just 3.0% in Q4.

Looking forward, weak exports, especially those towards Europe, is expected to weigh on economic growth of HK. Close watch on property sector is required as residential price and office rental are expected to keep adjusting downward. Nevertheless, individual consumption and service related sectors will remain strong, supported by the consistent economic growth of China.

【Taiwan】Drop in exports and significant slowdown in economic growth expected Real GDP of Taiwan reported 4.0%’s YoY growth in 2011. However, economic growth showed significant slowdown with real GDP grew just 1.9% in Q4 2011 over Q4 2010. As an export-driven economy, it was greatly affected by the slowing demand from Europe and other regions.

Looking forward, we expect Taiwan economy to decelerate further as demand for exports will most likely remain weak. While plastics production could see modest improvement in H2, we see no sign of an upturn in semi-conductor and LCD productions.

【Korea】Relatively slow deceleration in economic growth expected Real GDP of Korea grew 3.6% YoY in 2011, showing a slower growth than 6.2% YoY in 2010. Although Korea economy slowed down in H2, individual consumption such as retail sales was strong. Automobile industry also broke its historical records in production units, benefiting from factors like less expensive Won. GDP in Q4 showed slower deceleration, maintaining 3.4%’s growth against Q4 2010.

Looking forward, affected by the significant slowdown of export industries and others as well as slower growth in individual consumption, industrial growth is expected to decelerate. However, the pace should be slower as emerging markets share larger proportion in exports from Korea.

Table of Contents

Industry Indicator Latest Data Page

Retail 1. Retail Sales Volumes Jan 2012

Restaurant 2. Restaurant Sales Volumes Dec 2011 2

Hotel 3. Hotel Occupancy / Room Rate Jan 2012

4. Residential Price / Rental Index Jan 2012 3

Real Estate 5. Office Price / Rental Index Jan 2012

Hong Kong

Export 6. Total Exports Jan 2012 4

Automobiles 7. Automobile Production Feb 2012

8. Semiconductor : IC Production Jan 2012 5

9. Semiconductor : Foundry Production Jan 2012 Electronics

10. LCD Production (10inch & Over) Jan 2012 6

Petrochemistry 11. Plastics Production Dec 2011

Taiwan

Retail 12. Retail Sales Volumes Jan 2012 7

Automobiles 13. Automobile Production Feb 2012

Shipbuilding 14. New Ship Completions Jan 2012 8

Steel 15. Crude Steel Production Jan 2012

Petrochemistry 16. Ethylene Production Jan 2012 9

Korea

Retail 17. Retail Sales Volumes Jan 2012 10

Appendix 1 Hong Kong・Taiwan・Korea Macroeconomic Indicators 11

Appendix 2 Monthly Sales Volume of Main Electronic Companies in Taiwan 13

Note: The “FORECAST” period added in this edition is a short-term outlook (about 6 months to 1 year).

This bulletin is issued semi-annually.

1

1. <Hong Kong> Retail Sales Volumes Forecast : Slower but still strong growth

-20%

-10%

0%

10%

20%

30%

2007 2008 2009 2010 2011 2012

Total Sales: 9.1 (Jan)Dept. Stores: 9.5 (Jan)Supermarkets: 13.2 (Jan)

Note: 1.The above figures refer to the volume adjusted for price changes from actual total sales value.

2.To avoid the effect of change in sales volumes during the Chinese Lunar New Year, which lies at different period every year, growth rate in January and February of each year is calculated by the average value of the two months.

Source: Census and Statistics Dept. HKSAR, Corporate Research Division of BTMU

Total retail sales in volume increased by 18.4% YoY in 2011, recording a faster growth than 2010 (15.5% YoY), thanks to steady HK economy that posted 5.0%’s YoY GDP growth in 2011. Retail sales in value were HKD406 billion. Strong arrivals from mainland with 23.9% YoY growth also contributed to the robust retail sales in HK. HK continues to be an attractive place for shopping to mainlanders because goods sold in HK are cheaper in price and better in quality. Despite supermarkets grew just 5.1% YoY, sales in department stores showed notable growth at 16.1% YoY, reflecting strong demand derived by tourists. By product, the ‘jewellery, watches & clocks and valuable’ category and ‘electrical goods and photographic equipment’ category both saw rapid increment in sales, recording 32.1% and 39.6%’s YoY growth respectively.

Outlook: A slower double digit but still strong growth is expected in 2012. Although economic growth in HK has been decelerating currently and growth in arrivals from Mainland will likely slow down, we expect total retail sales volumes to be supported by strong demand for jewellery, electrical goods and others. While retailers are largely optimistic about retail sales outlook, they face rapid rise in operating costs especially in rent and labour costs.

2. <Hong Kong> Restaurant Sales Volumes Forecast: Growth expected to decelerate gradually

-15%

-10%

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012

All restaurants: 1.2 (11Q4)Chinese restaurants: 0.4 (11Q4)Fast food shops: 4.7 (11Q4)

Note: The above figures refer to the volume adjusted for price changes from actual total sales value.


Total restaurant sales in volume increased by 1.0% YoY in 2011. Restaurant sales in value were HKD89.3 billion. Although growth was much slower than 2010 (3.4% YoY), such deterioration was mainly due to inflation (CPI was 5.3% in 2011) and worries over radioactive contaminated food after the Great East Japan Earthquake. By sector, sales of non-Chinese restaurants, including the Japanese restaurants, declined from previous year’s level by 1.2%. However, sales of fast food sector grew 2.2% YoY and that of Chinese restaurants grew 1.8% YoY, reflecting continuously strong demand for dinning at restaurants.

Outlook: Restaurant sales in volume is forecasted to grow at a slow pace, as growth in HK’s real GDP is thought to turn downward and growth in tourist arrivals will likely slowdown. However, in view of returning confidence in Japanese restaurants and safety of imported food from Japan, we do not expect restaurant sales to decline from previous year’s level. On the other hand, some restaurants could face downward pressure in profitability as costs including raw materials, rent, labour and others are expected to remain rising.

2

3. <Hong Kong> Hotel Occupancy / Room Rate

Forecast: Continuing high occupancy and room rate

0

500

1,000

1,500

2,000

2007 2008 2009 2010 2011 201260

70

80

90

100

Average achieved hotel room rate-all hotels: 1,527 (Jan)Occupancy rate: 85 (Jan)

(HKD) (%)


Occupancy of all hotels reached 89% in 2011, exceeding the already-high occupancy level in 2010 (87%) and was the highest in last 15 years or so. Occupancy improved in all sectors, with top-end high tariff reported 85% occupancy. Such high occupancy was resulted by the strong demand and low supply market condition. While overnight visitors increased by 11.1% YoY, total number of rooms grew just 4.0% YoY (14 new hotels and 2,402 new and renovated rooms). Among the new rooms, only 306 rooms were provided by top-end hotels. Gaining momentum from the supply-demand imbalance, overall room rate continued to increase and grew significantly by 16.4% YoY in 2011.

Outlook: While visitors from Europe and the US may slowdown, demand from Asian visitors is expected to stay steady as economies in Asian regions are generally healthy. Thus, total number of visitors is forecasted to grow 6-7% YoY or so in 2012. On the other hand, even in assumption that there is no delay in scheduled completion, future new supply is expected to grow just 8.5% YoY in 2012. Considering current room shortage, such growth in supply would not be sufficient to ease the tight supply-demand situation. Thus, occupancy may remain high and room rate could rise further by 6-15% or so in 2012.

4. <Hong Kong> Residential Price / Rental Index

Forecast: Downward adjustment in price will likely continue

50

100

150

200

250

1997 1999 2001 2003 2005 2007 2009 2011

Price Index (Large Units, 100sqm or above): 213.9 (Jan)Price Index (Popular Developments): 159.8 (Jan)Rental Index (All): 133.2 (Jan)

<1999=100>

Source: Rating & Valuation Dept. HKSAR, Corporate Research Division of BTMU

Price index of large units (100sqm or over) rose 7.7% and popular developments rose 8.0% in Dec 2011 over Dec 2010. However, price index started to decline since mid-2011, with price of large units dropped by 4.8% and popular developments dropped by 5.5% in Dec 2011 over Jun 2011. Total number of transactions declined by 47.0% in H2 over H1 in 2011. Such decline was because buyers turned cautious as HK economy started to slowdown and mainland investors showed lesser interests. Rental index was also affected, declining by 0.7% in Dec 2011 over Jun 2011.

Outlook: Price index is expected to adjust downward as a whole as demand is likely to be affected by possible slowdown in HK economy and chances of government loosening the control measures are slim. In fact, HKMA has recently warned banks against high risk in mortgage loan management. In addition, the newly elected Chief Executive has expressed his concerns over property price controls. At the same time, new property supply, though at a slow pace, will rise steadily in and after 2012. Therefore, for now, buyers are expected to continue the wait-and-see attitude.

3

5. <Hong Kong>Office Price / Rental Index Forecast: Rental expected to drop

50

100

150

200

250

300

1997 1999 2001 2003 2005 2007 2009 2011

Price Index (All Grades): 301.8 (Jan)Rental Index (All Grades): 177.3 (Jan)Rental Index (Grade A): 186.4 (Jan)

<1999=100>

Source: Rating and Valuation Dept. HKSAR, Corporate Research Division of BTMU

Rental index of office rose 14.6% in Dec 2011 over Dec 2010. Demand was considerably strong in 2011. HK continues to be the important location for foreign companies wishing to enter the mainland market or vice versa. Number of regional headquarters in HK grew 4.3% YoY in 2011. However, towards end-2011, there were slight downward adjustments in price and rental. These were first adjustments since mid-2009. Investor sentiment and office space demand slowed down due to US weak economy and uncertainties from EU sovereign debt issues. Companies turned conservative in their expansion plans. As a result, overall vacancy increased slightly from 4.3% in Q1 2011 to 4.6% in Q4 2011 despite supply remained at a low level in 2011.

Outlook: Rental index is expected to decline. Demand for office space, especially those in central CBD, will likely weaken. Tenants in central CBD are mostly financial institutions which could easily be affected by financial crisis and fluctuation of global economy. Some companies actually scaled down their office space or relocated to less-expensive areas. Recently, owners are said to be more willing to accept a lower rental. In 2012, rental will continue to fall as investors also remain cautious in view of falling rent.

6. <Hong Kong>Total Export Forecast: Unavoidable slowdown in growth

0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012-30%

-20%

-10%

0%

10%

20%

30%

40%

Total Exports: 259 (Jan)YoY Growth Rate: ▲8.6 (Jan)(HKD billion)

Note: To avoid the effect of change in sales volumes during the Chinese Lunar New Year, which lies at different period every year, growth rate in January and February of each year is calculated by the average value of the two months. Source: Census and Statistics Dept. HKSAR, Corporate Research Division of BTMU

Total exports grew 10.1% YoY to HKD3,337.3 billion in 2011, showing a sharp slowdown in growth. It was mainly because exports to mainland China fell to 9.3% YoY in 2011 from 26.5% YoY in 2010. In addition, other regions also performed poorly, with exports to the Europe growing just 6.0% YoY and the US declining by 0.4% YoY in 2011. By sector, while exports of office machines and telecommunication equipments grew 14.0% and 10.0% YoY respectively, the largest electrical sector grew just 6.7% YoY and apparel sector almost remained at last year’s level, with 2.0%’s YoY growth.

Outlook: Although unemployment level in the US is still high, it has dropped in recent few months. Thus, exports to the US market are expected to improve in view of better economy outlook. Exports to emerging countries like India may slowdown but a relatively strong growth is expected. However, exports to the EU market are expected to deteriorate further as Europe economy will remain gloomy. Thus, although total exports are expected to stay increasing, a slowdown in growth is unavoidable. Meanwhile, manufacturers could undergo difficult situation as labour cost is rising and raw-material prices are kept at high level.

4

7. ＜Taiwan＞Automobile Production Forecast: Growth expected to remain steady

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010 2011 2012-100%

-50%

0%

50%

100%

150%

200%

250%

300%

Commercial Car (CC) Production: 4.7 (Feb)Passenger Car (PC) Production: 22.6 (Feb)YoY Grow th (CC Production): 40.8 (Feb)YoY Grow th (PC Production): 24.5 (Feb)(th units)

Source: CEIC Data Co., Ltd. ,

Corporate Research Division of BTMU

Automobile production grew 13.1% YoY to 340,000 units in 2011. Although supply of auto parts was stopped several times by the Great East Japan Earthquake and flood in Thailand, growth in automobile productions was supported by strong domestic sales of 380,000 units, thanks to rise in consumer sentiment due to good performance in export industries mainly in H1 2011. However, domestic demand in Taiwan decelerated in H2 2011, with its export-oriented economy being affected by the decelerating economy of Europe and the world. As a result, growth in automobile production also started to slowdown.

Outlook: As an export-driven economy, Taiwan is not immune to the effects of the weakening Europe economy and the anticipated slowing economic growth of China in 2012. Moreover, there are numerous factors, such as the consistently high oil price, applying downward pressure to automobile sales. Nevertheless, in view of 3 million automobiles in Taiwan have to be replaced in near future as well as export industries could be supported by the further increasing economic cooperation between Taiwan and China after the President election, automobile production is expected to sustain steady growth.

8. <Taiwan> Semiconductor : IC Production Forecast: Unsustainable recovery expected

0

50

100

150

200

250

300

2007 2008 2009 2010 2011-100%

-50%

0%

50%

100%

150%

200%

IC Production Value: 104.6 (Jan)YoY Ave. Unit Price Grow th: ▲17.1 (Jan)YoY Production Grow th: ▲18.8 (Jan)(NTD '00mil)



IC production declined by 30.8% YoY to NTD166.2 billion in 2011, affected mainly by the significant drop in price of major product DRAM. Drop in DRAM price was because production of PC, the major customer sector of DRAM, was dented by effects of production adjustment in H1 and EU sovereign debt issues in H2. Taiwanese DRAM manufacturers again faced risks in shortage of funds as they recorded operating loss due to the lower-than-cost market price of DRAM.

Outlook: IC production may improve in 2012, but such recovery is expected to be an unsustainable one. Although Europe economy may remain gloomy, with the continuous demand for laptop PC and the help of sales of new tablet models, in which DRAM installation was doubled in number, demand for DRAM is expected to grow at a moderate pace. We also see possibilities in improvements of market price while production is maintained at low level. Price could even improve further, depends on the movements of Japanese manufacturers. DRAM manufacturers have no choice but to put investments in device density enhancement to increase competitiveness; yet this distinct business nature leads to excessive production and will highly likely prevent continuous improvement in price. Global industrial reforms and M&A must be conducted for manufacturers to sustain favorable profit.

5

9. <Taiwan> Semiconductor : Foundry Production

Forecast: Production expected to hit the bottom and recover in mid-2012

0

100

200

300

400

500

600

2007 2008 2009 2010 2011-80%

0%

80%

160%

240%

320%

400%

Foundry Wafer Production Value (8 Inch & Below): 124 (Jan)Foundry Wafer Production Value (12 Inch & Above): 311 (Jan)YoY Growth in Production Units (8 Inch & Below): ▲26.6 (Jan)YoY Growth in Production Units (12 Inch & above): ▲2.4 (Jan)YoY Growth in Production Value (8 Inch & Below): ▲20.8 (Jan)YoY Growth in Production Value (12 Inch & above): ▲3.1 (Jan)

(NTD '00mil)

Source: CEIC Data Co., Ltd,


Foundry production in value declined by 9.9% YoY to NTD544.7 billion. Business environment remained poor in 2011. In the first half, manufacturers of assembled products including PC and flat-screen TV conducted production adjustment. In contrast to expectations of an upturn in the later half, the decelerating Europe and global economy applied downward pressure. Besides, yield rate of high-tech products was low. As a result, foundry manufacturers’ performances some how deteriorated from previous year’s level.

Outlook: Foundry production in value is expected to improve moderately in 2012 after production adjustment to be conducted a little longer. Foundry production could be affected by the unfavorable Europe economy. However, there is increasing demand for smart phones to replace traditional mobile phones. Demand for tablets, in which new models are launched, is expected to have steady growth. Moreover, inventory of finished product manufacturers will return to favourable level by Apr-Jun 2012. Thus, we expect foundry productions to recover in H2 2012. Although depreciation cost for high-tech product investments might increase, such rise in cost will be eliminated by growth in revenue. Thus, manufacturers’ performances are expected to be stable.

10. <Taiwan> LCD Production (10 Inch & Over) Forecast: Production will be flat at best

0

250

500

750

1,000

2007 2008 2009 2010 2011-100%

-50%

0%

50%

100%

150%

200%

250%

300%

LCD Production Value (10 Inch & Over): 419 (Jan)YoY Ave. Unit Price Growth: ▲7.8% (Jan)YoY Growth (Production Units): ▲3.4% (Jan)(NTD '00mil)

Source: CEIC Data Co. ,Ltd. ,


LCD production in value declined by 8.9% YoY to NTD577.5 billion in 2011. While most LCD manufacturers expected strong demand, demand from LCD TV sector, the major customer, was much lower than expected. Despite manufacturers’ efforts in production cuts, supply-demand condition eased significantly and resulted in decline in total production value. In addition, market price also fell rapidly to the level lower than manufacturers’ cost and all LCD manufacturers reported operating loss. While facing severe business condition, a leading company even had to ask for debt repayment extension.

Outlook: LCD productions in 2012 are expected to flat year-ago level at best. As for LCD demand, although we do not expect meaningful growth, demand from emerging economies is expected to increase steadily. Thus, in the short-term, supply-demand could be balanced with manufacturers reducing production. Market price could even improve in quarterly base. However, in the mid term, factors such as production increase in China will continue to increase risks of excess supply and supply-demand condition will most likely remain easing. Thus, we forecast LCD productions in 2012 to flat year-ago level at best and performance of LCD manufacturers to remain unfavorable.

6

11. <Taiwan> Plastics Production Forecast: Production will improve at

moderate pace

0

100

200

300

400

500

2007 2008 2009 2010 2011▲60%

▲30%

0%

30%

60%

90%

PVC Production: 59 (Dec)ABS Production: 104 (Dec)PS Production: 74 (Dec)PP Production: 90 (Dec)LDPE Production: 40 (Dec)YoY Plastics Production Grow th: ▲14 (Dec)(th tons)



Plastics production declined by 9.8% YoY to 4.459 million tons in 2011. There were several positive factors. Some orders were shifted to Taiwan after the Great East Japan Earthquake and PS became more price-competitive in China after being included in ECFA. Nevertheless, plastics production declined due to the decrease in demand from Asian market affected by EU sovereign debt issues. Demand from China also fell affected by the decelerating economic growth. Repeated fires at leading petrochemical plants also resulted in plastics production decline.

Outlook: Demand for exports to China and other regions are expected to remain weak, being greatly affected by the gloomy economic condition in Europe as well as facing competition from the less expensive products from Middle East. On the other hand, domestic demand will unlikely improve as well since it will be affected by global economic deceleration as Taiwan is an export-driven economy. However, the petrochemical plant which has been temporarily shutdown due to fire will reopen in H2 2012. Besides PS, products such as PVC, ABS, PP, etc. might enjoy tariff cut if they are added to ECFA. Therefore, plastics production is expected to improve in 2012.

12. <Taiwan> Retail Sales Volumes Forecast: Positive but slowing growth

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2007 2008 2009 2010 2011 2012-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Retail Sales: 3,360 (Jan)YoY Growth: ▲2.3 (Jan)(NTD '00mil)



Retail sales volumes grew 6.4% YoY to NTD3,721.3 billion in 2011, thanks to the growth in individual consumption supported by good employment condition and consumer sentiment. The double digit growth in tourist arrivals from mainland and Japan also contributed to the robust growth in retail sales. Performance was good in all sectors, with department stores, supermarkets and convenience stores grew 7.6% YoY, 7.1% YoY and 6.7% YoY respectively.

Outlook: While exports are decelerating, the export-driven economy of Taiwan is expected to grow at slower pace. Although unemployment rate has been maintained at low level in H2 2011, there are increasing companies asking employees to take no-pay leave in year end. We see possibilities of cuts in employees and salaries by export related manufacturers and individual consumption could be affected. Besides, consumer confidence index is still low after slightly increased in the beginning of 2012 and is trending downward. Nevertheless, we do not expect retail sales to turn negative as performances of major retail sectors are good at present and sales of food is expected to be stable. Therefore, retail sales volumes will likely to remain positive amid slowing growth.

7

13. <Korea>Automobile Production Forecast: Maintain positive year-on-year

growth

0

5

10

15

20

25

30

35

40

45

50

2007 2008 2009 2010 2011 2012-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Commercial Car (CC) Production: 3.6 (Feb)Passenger Car (PC) Production: 38.6 (Feb)YoY Grow th (CC Production): ▲18.9 (Feb)YoYGrow th (PC Production): ▲44.5 (Feb)('0,000 units)

Source: CEIC Data Co., Ltd. , Corporate Research Division of BTMU

Automobile production grew 9.2% YoY to 4.66 million units in 2011, breaking the historic records. Domestic demand had small growth at 1.5% YoY, dented by inflation and increasing uncertainty over global economy in H2 2011. However, exports to emerging markets and other regions supported production growth, as Korean automobiles has became better in quality and more reliable. By type, exports of SUV were good especially to China. Along with increasing production, Korean automakers also reported growth in performance.

Outlook: Affected by the weak Europe economy, sentiment of automobile buyers may remain low. Moreover, with the consistently high gasoline price, users turning to compact cars and high fuel efficiency cars might increase further. Thus, automakers with medium size cars as their major products are expected to undergo difficult business condition. As for major auto markets such as EU and the US, Japanese automakers may get back market share after recovering from the effect of the Great East Japan Earthquake. However, exports to those markets from Korea will most likely grow as Korean automakers will benefit from staged tariff cut in EU markets (EU-South Korea FTA), advantages of less expensive Won and US-South Korea FTA which has also became effective. Thus, we expect Korean automobile production to remain positive amid slowing growth.

14. <Korea> New Ship Completions Forecast: Downward trend expected

0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010 2011 2012-60%

-30%

0%

30%

60%

90%

120%

150%

180%

210%

General Cargo Carrier Completion: 73.2 (Jan)LPG/LNG Carrier & Chemical Tanker Completion: 12.3 (Jan)Steel Oil Tanker Completion: 18.2 (Jan)YoY Growth (General Cargo Carrier): ▲12.2 (Jan)YoY Growth (LPG/LNG Carrier & Chemical Tanker): ▲44.4 (Jan)YoY Growth (Steel Oil tanker): ▲19.7 (Jan)

('0,000 tons)


New ship completions grew 9.6% YoY to 14.67 million tons in 2011. By vessel type, although LPG/LNG carrier completions declined over year-ago level, growth in general cargo carrier completions was nearly 30% YoY, driving growth of the whole industry. Tanker completions also marked over 30%’s YoY growth. Benefiting from weak Korean won amid decreasing global demand, Korean yards have succeeded to receive orders for high value added vessels such as extra-large container ships, drill ships, LNG vessels, etc. As a result, Korea was able to sustain positive year-on-year growth and further improvement in new order amount. As for performance of ship builders, their profit was maintained at high level although most of them gained less profit as orders received after the financial crisis in 2008 were at low price.

Outlook: Despite LNG carrier orders will likely increase, tanker and bulker orders will unlikely recover. Total number of new orders is expected to decline from year-ago level. The decreasing number of new orders is expected to dent orderbook level, which has been kept relatively high by orders received in past years. Therefore, we forecast new ship completions to trend downward in 2012.

8

15. <Korea> Crude Steel Production Forecast: Production expected to see small

decline

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012-50%

-25%

0%

25%

50%

75%

100%

125%

150%

Crude Steel Production: 512 (Jan)YoY Growth: ▲9.6 (Jan)('0,000 tons)


Crude steel production grew 16.3% YoY to 68.52 million tons, driven by strong domestic demand from automobile industry as exports increased and from shipbuilding industry as ship completion was kept high. However, demand from public projects and property market remained low. In addition, manufacturing activities in Korea slowed down affected by the decelerating economy of Europe and the world in H2. As a result, operation rate of crude steel manufacturers trended down. At the same time, price competition from Chinese manufactures pulled down market price and raw material price rose rapidly. These negative factors applied downward pressure on Korean crude steel manufacturers’ performances.

Outlook: Domestic demand will likely decrease affected by the slowing growth in automobile production and decrease in new ship completion. Moreover, some automobile and electronics manufacturers might largely increase the use of less expensive imported steel plates. Demand for exports is also not expected to improve as Europe economy remains weak. Crude steel manufacturers would have to reduce production for a short time. Although the increasing demand from China for construction of infrastructure could some how help supply-demand condition in Asia in H2 2012, crude steel production will likely see small decline.

16. <Korea> Ethylene Production Forecast: Maintain year-on-year growth

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011 2012-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Ethylene Production: 68.8 (Jan)YoY Growth: 6.0 (Jan)

('0,000 tons)


Ethylene production increased by 1.8% YoY to 7.42 million tons. In Mar-May, many leading petrochemical plants were shut down for maintenance and production was temporarily dented. However, stable domestic demand from sectors such as automobile and home appliance and strong demand for exports to Asian regions drove growth in ethylene production. On the other hand, in H2 2011, demand some how weakened affected by EU sovereign debt issues. Besides, the supply-demand condition in Eastern Asia has been easing with the full operation of new plants in Middle East and China.

Outlook: Although we are not optimistic about the outlook, domestic demand is expected to flat last year’s level or go up. It is because demand from automobile industry will be strong as automobile production will likely have positive YoY growth. Besides, new construction project amounts are recovering recently. On the other hand, exports could be dented by the weak Europe economy. However, continuous facility constructions demand mainly from major development industries in China should provide some supports to exports. Thus, we expect ethylene production to exceed year-ago level. Meanwhile, consistent excess supply in Asian market will likely keep market price low and apply downward pressure to petrochemical manufacturers’ margin.

9

17. <Korea> Retail Sales Volume Forecast: Maintain positive growth but at

slower

0

5,000

10,000

15,000

20,000

25,000

30,000

2007 2008 2009 2010 2011 2012-10%

-5%

0%

5%

10%

15%

20%

Retail Sales: 25,854 (Jan)YoY Growth: 3.4 (Jan)(KRW billion)


Retail sales volumes grew 8.5% YoY to KRW299 trillion in 2011. Growth was slightly lower than that of 2010 (9.6% YoY) but was still strong. Performance was good in all sectors. Home shopping and convenience stores showed strong growth in sales with 22.3% YoY and 19.0% YoY respectively. Department stores reported 11.1% YoY growth followed by 9.1% YoY growth in GMS. The robust retail sales was due to rapid growth in individual consumption supported by good employment, with unemployment rate being maintained at around 3%.

Outlook: Affected by the gloomy Europe economy, export industries are expected to grow at a much slower pace in 2012. In fact, consumer confidence index, which is the leading consumption indicator, actually turned downward recently. Thus, growth in retail sales though will still remain positive, is expected to slow down. In addition, regulations on new shops openings, business hours & dates, etc. are increasing recently and might affect retailers’ revenue. Therefore, retailers might have to develop other means of sales channels. By sectors, we expect further expansion in home shopping, online shopping and convenience store sectors.

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Appendix 1 Hong Kong Macroeconomic Indicators

08 09 10 11 11/1Q 11/2Q 11/3Q 11/4QReal GDP (%) 2.3 ▲2.6 7.0 5.0 7.6 5.3 4.3 3.0Industrial Production (%) ▲6.7 ▲8.3 3.5 0.7 3.5 2.0 0.2 ▲2.2Retail Sales (%) 10.6 0.6 18.3 24.8 21.0 28.1 27.4 23.3Consumer Price Index (%) 4.3 0.5 2.4 5.3 3.8 5.2 6.4 5.7Visitor arrival (%) 4.7 0.3 21.8 16.4 12.6 16.9 19.0 16.7

China (%) 8.9 6.5 26.3 23.9 17.5 25.1 27.9 24.7US & Europe (%) ▲4.8 ▲6.2 9.3 2.9 2.5 3.9 1.9 3.1Others (%) 1.1 ▲8.5 16.3 3.8 4.0 4.9 3.1 3.2

Trade Balance(HKDbillion) ▲201.1 ▲223.3 ▲333.8 ▲427.3 ▲81.2 ▲118.4 ▲110.7 ▲116.2Export Growth (%) 5.1 ▲12.6 22.8 10.1 24.6 7.9 4.3 7.0Import Growth (%) 5.5 ▲11.0 25.0 11.9 20.7 10.3 8.8 9.3

1.4 25.9 75.121 n.a. 75.1 ▲9.4 ▲5.4 59.5

Foreign Reserve (USD'00 mil) 1,825 2,558 2,687 2,854 2,726 2,772 2,776 2,854Stock Market (HSI 1964=100) 14,387 21,873 23,035 18,434 23,528 22,398 17,592 18,434Unemployment Rate (%) 3.5 5.3 4.3 n.a. 3.5 3.6 3.2 3.3Exchange Rate (HKD/USD) 7.786 7.752 7.769 7.7843 7.787 7.778 7.787 7.785Exchange Rate (JPY/HKD) 13.28 12.07 11.29 10.237 10.56 10.49 9.97 9.94

Govt. Consolidated A/C (HKDbillion)

Note: % means a year-on-year growth rate. The quarterly figures of tined area are cumulative total of the year while the others are figures of the quarter. Foreign exchange reserves and stock value are figures at term-end. Exchange rate is the average rate of the given period. Source: CEIC Data Co., Ltd., Corporate Research Division of BTMU

Taiwan Macroeconomic Indicators

08 09 10 11 11/1Q 11/2Q 11/3Q 11/4QReal GDP (%) 0.7 ▲1.8 10.7 4.0 6.2 4.5 3.5 1.9Industrial Production (%) ▲1.8 ▲8.1 26.9 5.0 15.3 7.1 3.4 ▲4.0Retail Sales (%) ▲1.0 1.6 6.6 6.5 10.2 5.7 5.3 5.0Consumer Price Index (%) 3.5 ▲0.9 1.0 1.4 1.3 1.6 1.4 1.4Trade Balance (NTD'00 mil) 4,593 9,517 7,133 7,575 1,258 1,529 2,177 2,611 Export Growth (%) ▲1.0 ▲16.3 29.0 4.5 9.6 4.2 1.1 3.6

Electronic Products (%) ▲7.1 ▲9.3 30.5 2.6 8.0 5.3 ▲0.9 ▲1.2 Import Growth (%) 4.7 ▲23.8 38.0 4.3 11.8 8.2 ▲0.1 ▲1.7

2,360 2,555 3,072 2,639 579 1,311 1,930 2,639

Growth (%) ▲28.5 8.3 20.2 ▲14.1 ▲2.7 ▲6.0 ▲9.9 ▲14.1

19.0 18.8 24.8 21.8 5.4 11.9 16.4 21.8

Growth (%) 7.0 ▲1.0 31.7 ▲11.8 ▲7.7 2.7 ▲8.1 ▲11.8Foreign Reserve (USD'00 mil) 2,917 3,482 3,820 3,855 3,926 4,003 3,892 3,855Stock Market (TSEW 1966=100) 4,591 8,188 8,973 7,072 8,683 8,653 7,225 7,072Unemployment Rate (%) 4.1 5.9 5.2 4.4 4.6 4.4 4.3 4.3Exchange Rate (NTD/USD) 31.54 33.03 31.49 29.40 29.31 28.86 29.18 30.27Excjamge Rate (JPY/NTD) 3.41 2.83 2.79 2.71 2.81 2.83 2.66 2.56

Outward Direct Inv. in China (No. of Projects)

Outward Direct Inv. in China (USD'00 mil)

Note: % means a year-on-year growth rate. The number of direct investments is counted on contract base while direct investments are counted by utilized amount. The quarterly figures of tined area are cumulative total of the year while the others are figures of the quarter. Foreign exchange reserves and stock value are figures at term-end. Exchange rate is the average rate of the given period. Source: CEIC Data Co., Ltd. , Corporate Research Division of BTMU

11

Korea Macroeconomic Indicators

08 09 10 11 11/1Q 11/2Q 11/3Q 11/4QReal GDP (%) 2.3 0.3 6.2 3.6 3.9 3.4 3.6 3.4Industrial Production (%) 3.3 ▲0.7 16.6 6.9 10.8 6.5 5.3 5.2Retail Sales (%) 6.8 4.0 9.6 8.4 9.9 9.0 9.4 5.8Consumer Price Index (%) 4.7 2.8 2.9 4.0 3.8 4.0 4.3 4.0Trade Balance (USD'00 mil) ▲133 404 412 308 70 83 63 92 Export Growth (%) 13.6 ▲13.9 28.3 19.1 29.6 18.6 21.4 9.0

Machinery (%) 18.9 ▲15.7 29.5 21.8 44.4 16.9 21.2 10.0Electrical & Electronic Products (%)

0.1 ▲4.5 26.9 2.7 9.5 4.3 0.5 ▲2.3

Import Growth (%) 22.0 -25.8 31.6 23.3 26.3 27.1 27.7 13.4Inward Direct Investment(No. of Permitted Projects)

Growth (%) 5.2 ▲16.4 ▲0.8 ▲13.0 ▲19.2 ▲16.6 ▲19.0 3.4Inward Direct Investment(USD'00 mil)

Growth (%) 11.4 ▲2.0 13.8 4.6 30.1 20.4 ▲24.3 4.8Foreign Reserve (USD'00 mil) 2,012 2,700 2,916 3,064 2,986 3,045 3,034 3,064Stock Market (KOSPI,1980=100) 1,124 1,683 2,051 1,826 2,107 2,101 1,770 1,826Unemployment Rate (%) 3.2 3.7 3.7 3.4 4.2 3.4 3.1 2.9Exchange Rate (KRW/USD) 1101.1 1,276.2 1,156.8 1,107.8 1,118.7 1,083.1 1,094.9 1,144.9Exchange Rate (JPY/KRW) 10.75 13.64 13.21 13.92 13.60 13.29 13.98 14.80

784

117.1 114.8 130.7 136.7 20.1 33.6 22.2 60.8

2,705 577 662 6823,744 3,132 3,108

Note: % means a year-on-year growth rate. The quarterly figures are the figure of that period. Foreign exchange reserves and stock value are figures at term-end. Exchange rate is the average rate of the given period. Source: CEIC Data Co., Ltd. , Corporate Research Division of BTMU

12

Appendix 2

Two foundry manufacturers （pre-process manufacturing） Three DRAM manufacturers

0

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012-100%

-50%

0%

50%

100%

150%

200%

Sales (Jan): 426YoY Growth (Jan): ▲5

0

50

100

150

200

250

300

350

400

2007 2008 2009 2010 2011 2012-100%

-50%

0%

50%

100%

150%

200%

250%

300%

Sales (Jan): 46YoY Growth (Jan): ▲43(NTD '00mil)

Four LCD manufacturers Four laptop PC manufacturers

0

500

1,000

1,500

2007 2008 2009 2010 2011 2012-100%

-50%

0%

50%

100%

150%

200%


0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012-30%

0%

30%

60%

90%

120%

Sales (Jan): 1,887YoY Growth (Jan): ▲4(NTD '00mil)

Four motherboard manufacturers Four EMS manufacturers

0

150

300

450

600

750

900

1,050

1,200

2007 2008 2009 2010 2011 2012-90%

-60%

-30%

0%

30%

60%

90%

120%

150%


0

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2007 2008 2009 2010 2011 2012-30%

0%

30%

60%

90%

120%

150%

180%

Sales (Jan): 2,893YoY Growth (Jan): 41(NTD '00mil)

Note: Foundry: TSMC, UMC, DRAM: Nanya, Powerchip, ProMOS, LCD: AU Optronics, Chi Mei Innolux, CPT, Hannstar, Laptop PC: Quanta, Compal, Inventec, Wistron, Motherboard: Elite, Asustek, Giga Byte, Micro-Star, EMS: Hon Hai Precision, Lite-On, BenQ, Mitac Source: Statement of accounts of the above companies, Corporate Research Division of BTMU

13

【BTMU Network in Hong Kong・Taiwan・Korea】《 Hong Kong 》《 Taiwan 》

《 Korea 》

Tomoko Matsuura（

Taipei

Hong Kong

East Tsim Sha Tsui Tsim Sha Tsui

Kowloon

松浦知子） 3031 [email protected]

Seoul

Branch

Sub-Branch

Representative O

14

ffice

This report is intended only for information purposes and is not intended to constitute an offer or solicitation to buy or sell securities or any other products. Contents of the report are information as at 2nd Apr 2012 and are subject to change without notice. This report has not been prepared to provide legal, taxational, financial, market-judgmental, or any other advises on propriety of any transactions. In taking any action, each reader is requested to act on the basis of his or her own judgment upon consulting certified lawyers, accountants or other professionals regarding the accuracy, validity and reliability of information appeared in this report. Bank of Tokyo-Mitsubishi UFJ is regulated by the Financial Services Authority. Copyright © The Bank of Tokyo-Mitsubishi UFJ, Limited 2012 No part of this publication may be reproduced, stored in a retrieval system or transmitted without the prior written permission of The Bank of Tokyo-Mitsubishi UFJ Limited. Publisher: The Bank of Tokyo – Mitsubishi UFJ, Ltd. Corporate Research Division (Hong Kong)

6/F., AIA Central, 1 Connaught Road Central, Hong Kong

Tomoo Nishina（仁科知夫）（852）2249 -3030 [email protected] Bee Yen Ooi（黄美艶） 3028 [email protected] Daisuke Ikeda（池田大輔） 3033 [email protected] Takehara（竹原毅洋） 3078 [email protected]

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