Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Petrochemical firms ramp up efforts to streamline NCC operations
Lotte Chemical's factory in Seosan, South Chungcheong Province / Courtesy of Lotte Chemical
By Park Jae-hyuk
Clock ticking for companies to submit self-rescue plans
Efforts to reorganize Korea's struggling petrochemical industry have gained momentum ahead of the year-end deadline for companies to submit self-rescue plans to the government.
Since the government made it clear that a credible self-rescue plan is a prerequisite for regulatory relief, financial support and tax incentives aimed at revitalizing the sector, companies have begun taking their own steps to streamline naphtha cracking center (NCC) operations.
Lotte Chemical and HD Hyundai Oilbank are set to sign an agreement by the end of this month for the former to transfer its NCC in Seosan, South Chungcheong Province, to HD Hyundai Chemical, their joint venture in the same city. The deal is aimed at cutting NCC output in response to a prolonged downturn driven by oversupply from China and the Middle East.
“The transaction will allow Lotte Chemical to reduce its deficits,” Hana Securities analyst Yoon Jae-sung said.
LG Chem and GS Caltex, which both operate NCCs in Yeosu, South Jeolla Province, have reportedly hired Bain & Company to discuss jointly operating their facilities and reducing output.
In Ulsan, Boston Consulting Group has been brought in to advise SK Geo Centric, S-Oil and Korea Petrochemical Ind. Co. on NCC output cuts. The consulting firm previously told the government that Korean NCCs should cut their combined output by at least 2.7 million tons and as much as 3.7 million tons a year.
In addition to the consulting work, SK Geo Centric said Thursday it signed a memorandum of understanding with SK Gas to replace naphtha with ethane at its NCC. The company said using ethane will lower production costs and improve the efficiency of ethylene production.
“Through cooperation with SK Gas, we will proactively strengthen the competitiveness of our NCC and keep operations stable even amid a structural downturn,” SK Geo Centric CEO Choi Ahn-seop said.
S-Oil, which is pushing ahead with the Shaheen project in Ulsan to build Korea’s largest petrochemical facility, is seeking more efficient NCC operations through its thermal crude-to-chemicals process rather than cutting output.
“The new facility simplifies processes, maximizes energy efficiency and reduces carbon emissions, allowing us to further advance vertical integration of our refining and petrochemical operations,” an S-Oil official said.
Industry Minister Kim Jung-kwan, center, speaks at the Korea Chamber of Commerce and Industry in Seoul, Aug. 20, during a ceremony marking Korea's 10 leading petrochemical firms' agreement to present self-rescue plans to overcome the crisis in the industry. Newsis
Still, the government has urged domestic petrochemical companies to cut output, warning that any free riders that try to benefit from others’ cuts will face strong repercussions.
Industry Minister Kim Jung-kwan will also visit Yeosu on Wednesday to reiterate that the government will not support petrochemical firms that fail to submit self-rescue plans.
“It goes against public sentiment for a company to pocket profits for years and then, when conditions worsen, refuse to commit its own funds while asking the government for money,” Kim said Sunday in an interview with local broadcaster KBS.
On Friday, lawmakers on the National Assembly’s Trade, Industry, Energy, SMEs and Startups Committee passed a proposal for special legislation to support the petrochemical sector. The bill now heads to the Legislation and Judiciary Committee before being sent to a plenary session for a final vote.