South Korea Manufacturers Sentiment Rises on Oil Drop

By William Sim

Aug. 28 (Bloomberg) -- South Korean manufacturers' confidence climbed from a three-year low on optimism the recent drop in oil prices will help improve profitability.

An index measuring businesses expectations for September rose to 79 from 74 the previous month, according to a survey of 1,452 manufacturers released by the Bank of Korea in Seoul today. A score lower than 100 means pessimists outnumber optimists.

Declining commodity prices may ease costs pressures on Korean businesses and consumers, helping to spur a recovery in domestic demand. The economy expanded at the slowest pace in more than a year last quarter as consumers cut back non- essential spending as they paid more for fuel and food.

``Sentiment is improving a bit but still low,'' said Go You Sun, an economist at Daewoo Securities Co. in Seoul. ``It'll take a while to see a major improvement depending on oil prices, exports and other key factors.''

Carmakers Hyundai Motor Co. and General Motors Corp.'s South Korean unit are manufacturers that raised prices earlier this year to recoup increased costs for steel and other raw materials.

The Korean won rose 0.3 percent to 1,080.67 against the dollar at 9:47 a.m. in Seoul. The Kospi index of shares fell 0.2 percent to 1,490.48.

An index measuring the outlook for commodity costs declined to 130 from 157, meaning fewer manufacturers expect prices to rise compared with last month's poll, today's report showed. An index measuring profitability climbed to 79 from 70.

Inflation Outlook

Crude oil has dropped 20 percent from a record $147 a barrel reached on July 11.

South Korea's inflation rate in August may not be as high as in July because fuel and other commodity prices are falling, Vice Finance Minister Kim Dong Soo said in a BBS radio interview in Seoul today. Inflation accelerated to a 10-year high of 5.9 percent in July.

An index of non-manufacturing companies' expectations for September rose 77 from 75 on the improved outlook for profits and cash flows. The Bank of Korea surveyed the manufacturers and 711 non-manufacturers between Aug. 18 and Aug. 22.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.