Among the Ulsan, Yeosu and Daesan petrochemical industrial complexes, corporations in Yeosu are expected to submit to the government by Friday the 19th at the latest a restructuring plan that includes cuts to naphtha cracking center (NCC) capacity. With the year-end deadline set by the government approaching, they are picking up speed.
In the Daesan industrial complex, LOTTE Chemical, HD Hyundai Oilbank and HD Hyundai Chemical presented restructuring plans at the end of last month. The remaining area is Ulsan. As in the findings of a consulting project conducted by the Korea Petrochemical Industry Association, there is an outlook that integration centered on refiners will take place in Ulsan, Yeosu and Daesan respectively.
According to the petrochemical industry on the 17th, LG CHEM and GS Caltex are in final negotiations over a petrochemical restructuring plan. The broad direction is reportedly set for the two companies to establish a joint venture and shut down one NCC unit.
The industry expects one of LG CHEM's older plants, rather than a GS Caltex plant, to close. LG CHEM's Yeosu Plant 1 (1.2 million tons) began operations in 1991. LG CHEM's Yeosu Plant 2 has a capacity of 800,000 tons and has been in commercial operation since 2021. GS Caltex's NCC unit also began operating in 2021. It has a capacity of 900,000 tons.
Unlike LOTTE Chemical, HD Hyundai Oilbank and HD Hyundai Chemical, LG CHEM and GS Caltex are not expected to release separate materials outlining the restructuring direction. Because the details of the two companies' talks are under a nondisclosure agreement, disclosure is not possible. The fact that U.S. energy corporations Chevron holds 50% equity in GS Caltex is also having an impact.
However, it is expected to become known that a restructuring plan has been drawn up when LG CHEM and GS Caltex apply to the Ministry of Trade, Industry and Energy for approval of a business reorganization plan related to the petrochemical sector overhaul. Afterward, the two companies plan to discuss the joint venture's equity and capital contribution ratios, and which of LG CHEM's and GS Caltex's existing counterparties will receive supplies of basic feedstocks such as ethylene produced at the reduced NCC.
Yeochun NCC, another NCC operator in the Yeosu complex, also plans to submit a restructuring plan this week. Although DL Chemical and Hanwha Solutions, Yeochun NCC's co-controlling shareholders, have not reached an agreement, the two sides share a consensus that a restructuring plan must be drawn up this week.
Yeochun NCC's Plant 3 has been offline since Aug. DL Chemical's position is that, instead of the 500,000-ton Plant 3, one of the 900,000-ton Plants 1 or 2 should be shut down. Hanwha Solutions said the matter is "under negotiation," and has not yet stated a precise position.
The remaining area is Ulsan. In Ulsan, Korea Petrochemical Ind. Co. operates a 900,000-ton NCC unit, SK Geo Centric operates a 660,000-ton unit, and S-Oil operates a 180,000-ton unit.
The issue is that S-Oil is scheduled to start the 1.8 million-ton Shaheen Project next year. To restructure the petrochemical industry around refiners in line with the consulting results, cuts would need to be centered on SK Energy, an affiliate of SK Geo Centric, and S-Oil, but S-Oil's stance is hard-line.
S-Oil maintains that the Shaheen Project is a newly built facility that has not even begun operations and is therefore not subject to cuts. In the end, the prevailing view in the industry is that, instead of Korea Petrochemical Ind. Co., which only runs an NCC business, SK Geo Centric is likely to shut its NCC unit.
The industry says the government's reduction plan, based on the consulting results and centered on refiners, is being carried out. A petrochemical specialist securities analyst said, "The government initially proposed to the petrochemical industry cuts of 1 million tons at Yeosu LG CHEM, 900,000 tons at Yeosu Yeochun NCC, 660,000 tons at Ulsan SK Geo Centric, and 1 million tons at Daesan LOTTE Chemical," adding, "It amounts to restructuring proceeding according to the government's plan."
The Ministry of Trade, Industry and Energy plans to state its position after corporations in Yeosu and Ulsan present restructuring plans. A ministry official said, "As early as next week, or no later than the week after next, we plan to announce our position." Under the Corporate Vitality Enhancement Act, the government reviews and approves business reorganization plans submitted by corporations within 60 days. Support measures will also be announced in the process.