International Molding Report: Focus on Japan, Taiwan, South Korea; Solid signs of growth

The Asian Crisis is almost exactly two years old, and it nowappears that it may pass as swiftly as it came. With the exceptionof Indonesia, all Pacific Rim countries have resumed rather solidgrowth and will recover to July 1997 levels of production as earlyas July 2001. Growth is particularly solid in South Korea andTaiwan. And even Japan is now showing signs that growth may returnto its battered economy. Seen as the primary growth engine forAsia, Japan's growth is critical.

All of this is excellent news for U.S. injection molders. ImprovedAsian economies will reduce some of the import pressures and mayhelp grow exports. Note here that until Asia's crisis struck,a steady growth in exports had benefited many molders. But then,as Europe's economies showed little or no growth, overall U.S.exports of manufactured products slumped.

As exports grow again, it is important to remember that only molderswho serve the high-end markets-complex parts with high added value-willbenefit. Electronics, consumer appliances, medical devices, andoffice products will show the most growth, followed by automotiveparts, as some of the Asian countries attempt to redress tradeimbalances.

Car sales across Asia are up sharply as seen in Figure 1. U.S.export data show that shipments of automotive parts have almostdoubled in the first four months of 1999 as compared to 1998,the height of Asia's recent recession. Some specifics:

South Korea, now with the lowest inflation in 34 years, hassurprised many with its ability to sustain rapid economic recovery.South Korea's economy expanded 4.6 percent in the first quarterof 1999, after contracting 5.8 percent over 1998. Initial reportsshow that second quarter growth may be even better.

And one U.S. molder of medical devices said that exports toSouth Korea-which had almost collapsed for that one company-areat the highest level ever. Based on known orders, that molderanticipates growing exports to South Korea by more than 15 percentfor the balance of 1999.
It is critical to understand that manufacturing overall and injectionmolding specifically in the Pacific Rim remains a growth areaand, unlike the United States, will grab an ever-growing shareof overall economic output. While the United States has experienceda recession in manufacturing over the past year and has seen moreof its economy transformed into a service and information economy,Asia is still developing: Manufacturing is where solid growthis expected for years to come.

Japanis in an interesting situation. It has been in a severe recessionfor the past decade and there are few if any overt signs of resumedgrowth. Most projections now show that Japan will see real GDPgrowth over the next 12 months of 1.7 percent and that in thenext few years Japan will emerge stronger than ever.

It has hardly been noticed, but Japan has undergone a major changeover the past years and has started to regenerate its entire economyin a very organized and highly disciplined manner, using long-termplanning. The result: Japan will return towards being one of themost innovative economies in the world while also transformingitself into a service and information economy.

Japan will increasingly move basic manufacturing-including injectionmolding-to countries such as China, Malaysia, Thailand, the Philippines,and even Indonesia. We believe that the resurgence of Japan willsurprise many and may cause a new round of trade tensions. However,as manufacturing grows in Asia, U.S.-based technology and systemssuppliers will be able to enjoy solid growth again.

Taiwanis an unusual case. This economy seems to have bypassed the worstof Asia's crisis and is now resuming its role as a major economicpowerhouse. In June 1999, Taiwan's export orders jumped 3.8 percentto US$ 10.5 billion, driven mostly by the offshore demand forcomputers and electronics (see Figure 2). This was the fourthconsecutive month in which Taiwan's export orders
exceeded US$ 10 billion.

Of particular benefit to molders in Taiwan supplying the high-value-addedelectronics market is that export orders in June for electronicsrose 16.9 percent to $1.76 billion. This is very much in linewith the global PC shipment growth for the first half of 1998,which exceeded 25 percent and has lifted output around the globefor injection molders in that market.

Analysis of Taiwanese exports also shows that export orders tothe United States rose 6.6 percent; to Hong Kong (which does includeChina in Taiwan-ese data) export orders rose 5 percent; ordersfrom Japan rose 5.1 percent-indicative of the slow yet systematicrecovery there; while export orders to Europe slipped 4.7 percent.

Taiwan import orders for plastics processing equipment, oneof the few countries in the world that lists such data, rose 3.5percent in June while exports of plastics processing equipmentrose 5.9 percent in June based on known orders. Taiwanese exportorders for plastics and rubber products in June exceeded US$ 557million.

As more and more companies demonstrate that exports are thekey to profitability, Japan's government may be forced to maintainthe currently low yen valuation. Exports accounted for 24.7 percentof total industrial revenue in the first quarter of 1999, thehighest such percentage ever. Molders of automotive parts acrossAsia have seen their orders increase and anticipate a furtherrecovery for 1999 and all of 2000.

Honda Motors, Japan's third largest automaker, in July reported thatsales in Southeast Asia will grow for the first time in threeyears after declining as much as 24 percent in 1998. For instance, total auto sales in Thailand in the first half of 1999 jumped 22 percent; in Malaysia car sales rose 17.4 percent in the same time period.

Overall, in our three selected countries, we see that the moldingbusiness is rising in Taiwan and South Korea and still decliningin Japan (see Figure 3). Next month we will focus on three additionalcountries for further insight into international trends.