Minister Kim Jung-kwan of the Ministry of Trade, Industry and Energy expressed his willingness to restructure the petrochemical industry, and with the ruling party proposing a special law for the petrochemical industry, the pace of restructuring in the struggling sector is expected to accelerate. The target for restructuring is likely to be the naphtha cracking facility (NCC), which has been hit hard by oversupply from China.
The NCC is a facility that produces general-purpose products such as ethylene, propylene, and benzene, which are the basic raw materials for the petrochemical industry, extracted from petroleum. The industrial complex housing the NCC is located in Ulsan, Yeosu in South Jeolla Province, and Daesan-eup in Seosan, South Chungcheong Province. With the Lee Jae-myung government actively involved, there is a sense that petrochemical corporations will move towards consolidation.
According to the industry on the 21st, Representative Joo Cheol-hyun of the Democratic Party of Korea proposed a 'special law on strengthening and supporting the competitiveness of the petrochemical industry' on the 11th of last month. The bill contains provisions for mergers, partitioning, equipment reduction for business restructuring, tax support for research and development, dismantling of aging facilities, subsidies for R&D and equipment investment, electric rate reductions or subsidies, streamlining procedures for establishing, expanding, improving, or closing production facilities, and exceptions to the application of the Fair Trade Act during negotiations on adjusting the operating rates.
The key aspect of this is the exception clause for the application of the Fair Trade Act. Even if petrochemical corporations want to sell NCC facilities, there is a possibility they might violate monopoly regulations under the Fair Trade Act when merging with facilities from other companies. A National Assembly official noted, 'This bill includes a provision regarding the Fair Trade Act, which has been pointed out as an obstacle when petrochemical corporations consolidate their facilities. Even if concessions are made on some issues such as tax support and electric rate reductions, it appears that an exception to the application of the Fair Trade Act will be included within a larger framework.'
LOTTE Chemical and HD Hyundai Oilbank recently signed a memorandum of understanding (MOU) for the integration of NCC facilities in the Daesan Industrial Complex. According to the industry, a plan for the integrated operation of the NCC facilities of HD Hyundai Chemical, a joint venture of the two companies, and LOTTE Chemical is under consideration. In addition to these companies, there are also NCC facilities from LG CHEM and Hanwha TotalEnergies in the Daesan Industrial Complex. It is anticipated that the facility integration plans of these companies will also be discussed in the future.
In the Ulsan Industrial Complex, it is reported that SK Geo Centric, responsible for the petrochemical business in the SK Innovation group, and Korea Petrochemical Ind. are discussing ways to adjust their NCC facilities. SK Geo Centric receives naphtha, the raw material for the NCC process, from SK Energy to produce and sell ethylene and propylene.
Korea Petrochemical Ind., also located in the Ulsan Industrial Complex with NCC facilities like SK Geo Centric, receives naphtha from S-Oil. However, after S-Oil begins operations on its petrochemical production facility, the 'Shahin Project,' in the first half of next year, it will need to find a new naphtha supplier. An industry insider said, 'While both sides have mutual interests, I understand that they are unable to narrow discrepancies over the sale price.'
Discussions about restructuring are ongoing among corporations with NCC facilities, but it is expected to take time to find common ground. Additionally, as the Lee Jae-myung government leans pro-labor union, it will also need to address potential labor union issues that may arise during the restructuring process.
An industry insider commented, 'There is a recognition within the petrochemical sector that restructuring is necessary for survival. As the Lee Jae-myung government is driving this initiative, corporations also need to step up proactively, but there is fierce competition to gauge each other's moves.'