Petrochemical firms at Yeosu complex submit restructuring plan to tackle industrywide crisis

A petrochemical industrial complex in Yeosu, South Jeolla Province, Mar. 9 / Yonhap

Petrochemical companies at an industrial complex in Yeosu submitted a joint business restructuring plan Friday, part of an industrywide self-rescue initiative of ailing companies in the sector, the industry ministry said.

Under the coordinated industry plan, Lotte Chemical will spin off its naphtha cracking center (NCC) operations at the Yeosu petrochemical industrial complex, South Jeolla Province, and merge it with Yeochun NCC, according to the Ministry of Trade, Industry and Resources and the Fair Trade Commission.

The merged entity will integrate core businesses of other companies at the complex — DL Chemical and Hanwha Solutions — including DL's polyethylene (PE), and Hanwha's PE and petroleum resin operations, to readjust their NCC facilities and production lines for common petrochemical products.

It also plans to shift its business portfolio toward high-value-added products, such as chemical materials for the medical and automotive sectors, as part of efforts to strengthen its long-term competitiveness.

The plan was submitted after the government announced in August its plan to support petrochemical companies' "voluntary" self-rescue plans to tackle an industrywide crisis stemming from global oversupply.

If approved, the Yeosu companies will receive customized support from the government, including financial and tax incentives, as well as streamlining of regulations.

Last month, the ministry approved a business reorganization plan of Lotte Chemical and HD Hyundai Chemical at the Daesan industrial complex, another major petrochemical complex, aimed at the voluntary reduction of their NCC capacity by 1.1 million tons.

It marked the first authorized restructuring project under the government initiative of reforming the petrochemical industry.

"If Yeochun NCC, which has been struggling under its business portfolio focused on commodity products, successfully goes through restructuring, it will be able to enhance its business efficiency and shift its portfolio toward high-value products," Industry Minister Kim Jung-kwan said in a press release.

Meanwhile, regarding the petrochemical companies' difficulties in importing key materials, such as naphtha, due to the persisting crisis in the Middle East, Kim said the government will do its utmost to help them secure naphtha supplies and minimize damage on their businesses.

Recently, Yeochun NCC, the country's largest ethylene producer, and other companies announced "force majeure" for some of their products due to disruptions in naphtha supplies. Force majeure refers to the occurrence of an unforeseeable and uncontrollable event that prevents a company from fulfilling a contract.

Earlier this week, the government said it will temporarily designate naphtha as an economic security item to better stabilize the supply and support affected companies.

Korea imports more than half of its naphtha through the Strait of Hormuz, a major Middle Eastern trade route, which has effectively been closed due to the U.S. and Israel-led war against Iran.