A change in thinking is needed. Cutting 500,000 tons (t) will not make a turnaround easy. I believe we basically need to consider a 900,000t cut, and even up to 1.4 million t.
As petrochemical companies struggling with oversupply face government pressure to restructure (reduce production facilities), Yeochun NCC Co-CEO Kim Gil-su said active cuts are necessary. Yeochun NCC is the No. 3 domestic producer by ethylene capacity, known as the "rice of industry." It is a joint venture in which Hanwha Solutions (formerly Hanwha Petrochemical) and DL Chemical (formerly Daelim Construction) each hold 50% equity.
On the 31st, LOTTE Chemical, HD Hyundai Oilbank, and HD Hyundai Chemical jointly drew up a business reorganization plan to reduce equipment at the naphtha cracking center (NCC) they operate in the Daesan petrochemical industrial complex in South Chungcheong and submitted it to the government.
The government is pressuring petrochemical complexes in Yeocheon and Ulsan to submit reduction plans as well. Yeochun NCC has halted its third plant since Aug. The ethylene capacity of Yeochun NCC's Plants 1 and 2 is 900,000t each, and Plant 3 is 500,000t.
Kim, the co-CEO, argued that while actively cooperating with the government's voluntary restructuring of petrochemicals and focusing on normalizing operations, the company should also consider shutting down Plant 1 or Plant 2.
On Dec. 11, Kim told ChosunBiz by phone, "We will finalize tomorrow the feedstock supply contracts with major shareholders Hanwha Solutions and DL Chemical," adding, "Solving the feedstock price issue is not the end of our self-rescue plan. To resolve the crisis Yeochun NCC faces, the broader supply problem across petrochemicals must be addressed. We need to consider shutting down two of our three plants."
Yeochun NCC burned through operating funds this year and, unable to repay borrowings, faced a default crisis before making a narrow escape thanks to support from major shareholders Hanwha Solutions and DL Chemical. However, due to structural deterioration such as the weak petrochemical cycle and oversupply from China, it halted operations at its third plant among three in the Yeosu national industrial complex since Aug.
Yeochun NCC then decided to draw up and deliver a self-rescue plan to its creditors, including the Korea Development Bank. One of the measures, to be finalized tomorrow, is a feedstock supply contract including ethylene.
In the Yeosu national industrial complex, Yeochun NCC operates a naphtha cracking center (NCC) that breaks down naphtha, a byproduct of crude oil refining, at high temperature and pressure to produce petrochemical feedstocks such as ethylene and propylene. Ethylene and propylene from the NCC are supplied to Hanwha Solutions and DL Chemical in the Yeosu national industrial complex. The company plans to sign a contract this time on prices for those supplies.
Kim said, "Until now, Yeochun NCC operated without a predictable feedstock pricing standard amid shareholder interests and market volatility," adding, "An external accounting firm's feedstock pricing consulting has provided a foothold for Yeochun NCC to escape unfavorable terms versus the market and receive normal costs. Based on this, Yeochun NCC will be able to conduct business activities grounded in contracts."
Based on the consulting results, Yeochun NCC's self-rescue plan will include normalization of cost structure through the feedstock supply contract, as well as reducing fixed costs and reorganizing the business portfolio. Kim said, "Instead of running all three plants at 80% as before Aug. 2025, if we reduce the number of operating plants, we can save tens of billions of won through energy savings and workforce redeployment," adding, "If we add executive pay cuts and innovations in procurement and sales, next year we can save 110 billion won more than this year."
◇ "Self-rescue measures may be hard to implement 100%, given the cycle slowdown we should cut up to 1.4 million tons at NCC"
At the same time, Kim argued that additional shutdowns of NCC facilities should proceed in parallel. He said it may be difficult to achieve the level of financial stability and credit recovery the creditors want through self-rescue measures, including cost normalization, alone.
Kim said, "We will do our best to implement the self-rescue plan, but there is no guarantee we can achieve 100%, and major institutions' outlook for the petrochemical cycle after the fourth quarter this year is not good," adding, "Since the feedstock prices we agreed with Hanwha Solutions and DL Chemical are higher than export prices, I think it is better to run NCC facilities only to the extent needed to meet that demand."
Kim also said a shift in thinking is needed, breaking from the fixed idea that "we should cut the smallest plants first" when reducing NCC facilities. Instead of the third plant, he suggests shutting down Plant 1 or Plant 2, and, if necessary, also shutting Plant 3.
Kim said, "With oversupply from China and downstream demand also declining, it is getting harder to run both Plants 1 and 2, each with a capacity of 900,000 tons, in a stable way," adding, "To meet the government's ongoing petrochemical restructuring policy and improve Yeochun NCC's economics, we should consider additionally shutting down one of Plants 1 or 2, beyond the current shutdown of Plant 3."
Kim said, "What creditors demand from Yeochun NCC is not a one-off restructuring but a sustainable EBITDA structure that can stably service principal and interest," adding, "For Yeochun NCC to lay the groundwork for cost normalization based on the consulting results and meet the government's NCC reduction targets, it must be reborn as a solid NCC company through bold facility cuts and a portfolio shift."
However, Kim emphasized that additionally halting one of Plants 1 or 2 beyond Plant 3 is still a personal view. Kim said, "Yeochun NCC's final decision-making must be made after sufficient discussions with joint shareholders, the board, creditors, and the government," adding, "Even if Yeochun NCC must endure pain, I hope it moves in the right direction."
Meanwhile, as demand for ethylene fell due to the economic downturn, 10 petrochemical companies and the Ministry of Trade, Industry and Energy held a voluntary agreement ceremony in Aug. to relaunch the petrochemical industry and strengthen industrial competitiveness, deciding to cut 2.7 million to 3.7 million tons, or 18%–25% of the total NCC production scale of 14.7 million tons. So far, the only companies in the petrochemical industry to present business reorganization plans are LOTTE Chemical and HD Hyundai Chemical.