Lotte, Hanwha, DL to merge NCC operations in Yeosu

Yeochun NCC's factory in Yeosu, South Jeolla Province / Courtesy of Yeochun NCC

Petrochemical firms operating naphtha cracking centers (NCCs) in Yeosu, South Jeolla Province, submitted Friday self-rescue plans aimed at cutting production in line with the government’s effort to revive the sector struggling with a prolonged recession caused by oversupply from China and the Middle East.

Under the plans, Lotte Chemical will spin off the division running its NCCs in Yeosu and merge it with Yeochun NCC, a joint venture between Hanwha Solutions and DL Chemical. The merger will create a new company.

Lotte Chemical will also spin off the division overseeing its polypropylene and polyethylene production in Yeosu and merge it with the new company. Hanwha Solutions and DL Chemical will spin off their polyethylene divisions in the southern port city and join the merger as well.

The companies said they will shift their focus to higher value-added products such as low-density polyethylene used for medical applications and polyolefin elastomer for hot melt adhesive in the automotive and cable industries.

The Ministry of Trade, Industry and Resources said the government will provide financing, tax incentives, eased regulations and other support once the Fair Trade Commission approves their merger plans.

“Once the restructuring is complete, Yeochun NCC will be able to run more efficiently and focus on higher value-added products,” Industry Minister Kim Jung-kwan said.

“While continuing to push for petrochemical restructuring, the government will make every effort to ensure a stable supply of naphtha for the industry, which is facing difficulties due to the Middle East crisis.”

The government asked domestic petrochemical firms last August to propose restructuring measures in exchange for regulatory relief, financial support and tax benefits, as the industry faced a prolonged slump from oversupply.

Last November, Lotte Chemical agreed to transfer its Daesan plant in Seosan, South Chungcheong Province to HD Hyundai Chemical, its joint venture with HD Hyundai Oilbank. The decision led the government to introduce a 2.1 trillion won ($1.4 billion) financial support package.

Industry officials expect the submission of restructuring plans by Yeosu’s NCC operators to put pressure on their peers in Ulsan.

Although SK Geo Centric, Korea Petrochemical Ind. and S-Oil are reportedly in talks to finalize details of their own plans to cut NCC capacity in Ulsan, S-Oil’s Shaheen project remains a sticking point, as the Saudi Aramco-owned company seeks to exclude its upcoming mega-size petrochemical plant from the restructuring efforts.

During a press conference Wednesday at the National Assembly in Seoul, unionized petrochemical workers from Yeosu criticized the opening of S-Oil’s new plant.