Lotte, HD Hyundai submit plans for NCC capacity cuts

Lotte Chemical's factory in Seosan, South Chungcheong Province / Courtesy of Lotte Chemical

Lotte Chemical and HD Hyundai Oilbank have become the first naphtha cracking center (NCC) operators to submit self-rescue plans that include production cuts.

The submission comes after the government asked domestic petrochemical firms in August to propose restructuring measures by the end of the year amid prolonged recession from oversupply issue, in exchange for regulatory relief, financial support and tax incentives.

Lotte Chemcial said Wednesday that the two companies, along with their joint venture HD Hyundai Chemical, have applied for government approval of their business reform plan.

Under the plan, Lotte Chemical will transfer its Daesan plant in Seosan, South Chungcheong Province, to HD Hyundai Chemical as part of efforts to cope with oversupply from China and the Middle East and shift to higher value-added products.

Industry officials expect the agreement to reduce annual NCC output from the Seosan site by up to 1.1 million tons, thus improving profitability. The government has recommended that domestic petrochemical firms cut their combined nationwide NCC output by up to 25 percent, or 3.7 million tons.

Industry Minister Kim Jung-kwan, center, inspects LG Chem's plant in Yeosu, South Jeolla Province, Wednesday. On his right is LG Chem CEO Shin Hak-cheol. Courtesy of Ministry of Trade, Industry and Resources

On the same day, Industry Minister Kim Jung-kwan visited another petrochemical complex in Yeosu, South Jeolla Province, urging NCC operators there to submit their self-rescue plans before the year-end deadline. He also made a similar call in Ulsan in September, encouraging firms to take part in the industry’s restructuring drive.

“Daesan may have opened the gate for business restructuring, but Yeosu will decide its fate,” Kim said. “Companies that fail to meet the deadline will be excluded from government support and will have to survive on their own amid future domestic and global challenges.”

LG Chem and GS Caltex, which both operate NCCs in Yeosu, have reportedly hired Bain & Company to discuss joint operations and possible output reductions.

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 reduce their combined production by at least 2.7 million tons and as much as 3.7 million tons annually.

However, uncertainty remains over when other NCC operators will submit their restructuring plans, even though Korea’s 10 leading petrochemical firms agreed in August to reduce their total NCC capacity.

S-Oil is going against the grain, pushing ahead with its Shaheen project in Ulsan to build a new petrochemical plant and declining to join the capacity cut. The company claims the new facility will make NCC operations more efficient through its thermal crude-to-chemicals process.