The drop in semiconductor activity was a surprise given the strong March export data. We believe seasonal adjustment could be a reason for the monthly fluctuation. The February gains were quite sharp. Thus, the March decline should be partly due to technical payback. Another reason could be that the strong chip performance is mostly driven by the price gain rather than the volume increase. Looking at the details, output dropped 8.1% (vs 28.2% in Feb), shipments also dropped 5.3% (vs 37.8%), and inventory dropped 19.2% after two months of gain. The utilisation rate also dropped quite sharply 7.2%.
We don’t think the overall weakness was due to raw material supply issues. Instead, it seems chip manufacturers are adjusting production rates to suit their own interests. Today at Samsung Electronics’ first-quarter conference call, the company stated that while advancements in AI are increasing structural memory demand, expanding supply is likely to be limited because of the time required to build new capacity. Due to concerns about supply shortages, customers are already placing orders for 2027. Based on current orders, the gap between supply and demand in 2027 is expected to grow even larger than in 2026.
Tomorrow, Korea April trade data will be released. We expect exports to grow 50% YoY. Early April data shows an 183% growth in chips and a 48% rise in petrochemical exports. Refineries pass higher input costs through to output and tight supply of chips should push up prices.
We continue to believe that strong global chip demand will support overall Korean growth, outweighing the disruption of oil supplies if the energy situation follows ING’s base case scenario.