Korea data preview: why the discrepancy between the figures has developed

Korea's industrial production release for May(+0.09%YoY) has turned out to be well below my expectation(+0.6%YoY) for three consecutive months. As my projection model is based on exports data, the combination of a sluggish semiconductor production(-0.4%YoY) and a strong semiconductor exports(+52.0%YoY) increases the risk of inaccuracy. I noted last month that several semiconductor producers making equipment replacement may explain why this discrepancy has developed. Looking at the data closely, however, it seems that the discrepancy between production and exports is largely due to not only the equipment replacement but also the rising semiconductor prices. The change in prices is reflected in exports data but production data comes in real terms. For the last two months, the shipments and the inventories of semiconductor have decreased simultaneously, with the export price growth having remained at elevated levels (see exhibit). Hence, the production has been flat at the same period while exports has shown sharp rise.

Considering this price impact on export data, I see industrial production in June should be improved by +2.5%YoY (+2.4%MoM). Even should the data beat the market expectations(1.63%YoY), there will be no influence to the fixed income market as participants are still focusing on the DM central banks.