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 speeding up.
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 one is Ulsan. As indicated by the consulting conducted by the Korea Petrochemical Industry Association, projections are 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 talks on a petrochemical restructuring plan. The broad direction is reportedly set for the two companies to form a joint venture and shut down one NCC unit.
In the industry, the expectation is that one of LG CHEM's plants, which are older than GS Caltex's, will be closed. 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 started up in 2021 with 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. The details of the two companies' talks are under a nondisclosure agreement, making a disclosure impossible. 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. After that, the two companies plan to discuss the joint venture's equity and investment ratios, and which of LG CHEM's and GS Caltex's existing counterparties will be supplied with 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 produced an agreement, the two sides have reached a consensus that a restructuring plan must be prepared this week.
Yeochun NCC's Plant 3 has been shut since August. DL Chemical's position is that, rather than the 500,000-ton Plant 3, one of the 900,000-ton Plants 1 or 2 should be idled. Hanwha Solutions said it is "an issue under agreement," and has yet to state a precise position.
The remaining area is Ulsan. In Ulsan, Korea Petrochemical Ind. Co. operates 900,000 tons of NCC capacity, SK geocentric 660,000 tons, and S-Oil 180,000 tons.
The issue is that S-Oil is set to start the 1.8 million-ton Shaheen Project next year. To reorganize the petrochemical industry around refiners reflecting the consulting results, cuts would have to be centered on SK Energy, an affiliate of SK geocentric, and S-Oil, but S-Oil's stance is firm.
S-Oil maintains that the Shaheen Project is a newly built facility that has not even started up and is 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 geocentric is the more likely to shut an NCC unit.
In the industry, the view is that the government's cut plan, centered on refiners and based on the consulting results, is being carried out. A petrochemical-focused securities analyst said, "The government initially proposed to the petrochemical industry cuts of 1 million tons at LG CHEM in Yeosu, 900,000 tons at Yeochun NCC in Yeosu, 660,000 tons at SK geocentric in Ulsan, and 1 million tons at LOTTE Chemical in Daesan," adding, "it amounts to restructuring proceeding according to the government plan."
The Ministry of Trade, Industry and Energy plans to state its position after corporations in Yeosu and Ulsan present their restructuring plans. An official at the ministry said, "As early as next week, or by the week after at the latest, we plan to make our position known." Under the Act on the Promotion of Corporate Vitality, the government deliberates and approves business reorganization plans submitted by corporations within 60 days. Support measures are also to be announced in this process.