Petrochemical firms step up last-minute restructuring push

A petrochemical complex in Seosan, South Chungcheong Province, emits black smoke, Feb. 25. Yonhap

Petrochemical companies have finalized their self-restructuring plans, paving the way for the government to proceed with a sweeping overhaul of the struggling industry.

Submitted by the government’s Friday deadline, the plans outline intensive restructuring measures, including asset sales and the formation of joint ventures among interested firms, as the companies seek to cope with a prolonged global oversupply of petrochemicals.

The ministry and 10 leading petrochemical firms have agreed to cut total domestic ethylene production by about 2.7 million to 3.7 million tons a year. Companies that miss the timetable risk being excluded from future financial and policy support, adding urgency to the current round of negotiations.

In the Yeosu and Daesan industrial complexes, companies finalized their proposals just hours before the cutoff, signaling progress on critical capacity cuts.

In Yeosu, Yeochun NCC and Lotte Chemical agreed to jointly submit a restructuring plan. The plan includes the permanent shutdown of Yeochun NCC’s third ethylene unit with an annual capacity of 470,000 tons, which has been idled, and the additional shutdown of one of their naphtha cracking centers (NCC).

Yeochun NCC currently operates two other NCC units with a combined capacity of 1.8 million tons, while Lotte Chemical runs a separate 1.23-million-ton facility in Yeosu.

SK Geo Centric's naphtha cracking center(NCC) facility in Ulsan / Courtesy of SK Geo Centric

The agreement came after earlier friction between DL Chemical and Hanwha Solutions, the joint owners of Yeochun NCC, raised concerns of possible delays. However, the companies reached a consensus on the need for swift action to stabilize the sector.

Meanwhile, LG Chem and GS Caltex also reportedly submitted a restructuring blueprint to merge their Yeosu operations. The plan includes ceasing production at LG Chem’s 1.2-million-ton and 800,000-ton ethylene plants into GS Caltex through a joint venture, then shutting down operations at the relatively older 1.2-million-ton facility.

Similar consolidation efforts are already underway in Daesan, where Lotte Chemical and HD Hyundai Chemical submitted a restructuring plan to the government last month to integrate their naphtha cracking center (NCC) facilities.

The two companies have agreed to merge Lotte Chemical’s 1.1 million-ton NCC unit into HD Hyundai Chemical as a noncash asset and then shut the facility down.

Once the major deals among companies in Yeosu and Daesan are completed, the annual ethylene supply cut is expected to meet the government’s target, as the submitted plans are projected to reduce the ethylene output by at least 3.67 million tons.

On the same day, three companies operating in the Ulsan Industrial Complex — SK Geo Centric, Korea Petrochemical Ind. Co. and S-Oil — are also reported to have finalized their restructuring proposals based on consulting results commissioned from Boston Consulting Group (BCG).

The companies are said to share the view that they should first pursue measures to optimize downstream operations before discussing potential reductions in their NCC capacities.

Industry Minister Kim Jung-kwan is scheduled to meet the heads of 10 petrochemical companies on Monday. They are expected to discuss government support measures for each company’s restructuring plan as well as the overall timetable for the sector’s overhaul.