Corporate business sentiment negative for 5th straight month; oil refining, chemicals hit worst level since financial crisis

Business sentiment among South Korean companies has turned negative for five consecutive months. Despite the semiconductor boom, renewed Middle East risk has left energy and materials industries struggling, analysts say.

The Korea Enterprises Federation said Tuesday its Business Survey Index for August came in at 89.9, based on a survey of the country's 600 largest companies by sales. It is the first time the index has fallen into the 80s since May (87.5), three months ago.

A BSI reading above 100 signals a more positive business outlook compared with the previous month, while a reading below 100 indicates a more negative one. The August figure marks the fifth straight month the index has remained below the 100 baseline — a streak that began after the March reading (102.7), the last survey conducted before the outbreak of the US-Iran war.

Both manufacturing and non-manufacturing sectors posted August outlook readings below the 100 baseline. It is the first time both sectors have simultaneously recorded negative outlooks since the May survey, three months ago.

The manufacturing BSI outlook fell to 88.4, down 7.2 points from the previous month's 95.6. The non-manufacturing BSI outlook dropped 9.1 points to 91.5, swinging from the previous month's positive reading of 100.6 into negative territory.

Among the 10 manufacturing sub-sectors, electronics and communications equipment (118.8) — which includes semiconductors — and food, beverages and tobacco (105.6), buoyed by expected summer holiday sales of ice cream, alcoholic drinks and ready-to-eat meals, posted strong readings. By contrast, six of the remaining sub-sectors all recorded negative outlooks, with only textiles, apparel, leather and footwear, and pharmaceuticals holding at or near the 100 baseline.

Petroleum refining and chemicals was particularly weak, with a reading of 57.7 — the lowest since the February 2009 outlook survey (54.5) taken during the global financial crisis, a gap of 17 years and six months.

The federation said the result reflected the ongoing burden of raw material and energy costs stemming from the prolonged Middle East war, compounded by concerns over deteriorating spreads — the margin between final product prices and raw material costs — and supply chain uncertainty following a recent escalation in the conflict.

Among the seven non-manufacturing sub-sectors, leisure, accommodation and dining (116.7) posted a strong reading on expectations of a summer holiday boost, but the remaining six sub-sectors — including electricity, gas and water (73.7) — all recorded negative outlooks.

The federation said the renewed flare-up of Middle East conflict risk had dampened sentiment, particularly in cyclical industries such as energy, materials, construction and machinery.

By category, the exports outlook (100.0) held at the baseline for the third consecutive month above 100. However, all other categories still recorded negative outlooks.

The financial conditions BSI outlook, which is especially sensitive to oil price shocks, fell to 87.8 — the lowest since January 2023 (86.3), a gap of three years and seven months.

Meanwhile, the investment BSI outlook came in at 97.0, below the baseline but the highest since September 2022 (98.2), a gap of three years and 11 months. The result reflects expectations for capital expenditure growth, centered on export-oriented manufacturers such as semiconductor firms.

Lee Sang-ho, head of the federation's economic affairs division, said key export sectors such as semiconductors were serving as a buffer, but that renewed instability in the Middle East was dampening overall corporate sentiment. He called for sustained support to ease the burden of raw material and logistics costs, and to ensure that restructuring efforts in the oil refining and petrochemical industries — which are facing critical conditions — can proceed without disruption.