Lotte Chemical’s Daesan plant (Photo courtesy of Lotte Chemical)
Domestic petrochemical companies are submitting voluntary restructuring plans to the government one after another, and the production reduction scale is expected to far exceed the initial target. Industry insiders estimate that ethylene production will be cut by more than 3.66 million tons annually through the operation suspension or shutdown of naphtha cracking centers (NCCs). However, coordination with the government remains, and additional consultations are needed for some facilities, so the reduction scale is expected to grow further. If restructuring is faithfully implemented, it is expected to provide breathing room for the domestic petrochemical industry, which has been struggling with China-induced oversupply.
According to industry insiders on Dec. 19, ethylene production in the Yeosu Industrial Complex in South Jeolla Province, a key region for petrochemical industry restructuring, is expected to decrease by about 2 million tons in the future. This corresponds to one-third of the total ethylene production in the Yeosu complex. LG Chem and GS Caltex submitted a restructuring plan to the government on Dec. 19 to consolidate and jointly operate their respective crackers, and it is highly likely that one of LG Chem’s relatively outdated facilities will be shut down. Currently, LG Chem produces 1.16 million tons and 870,000 tons of ethylene at Yeosu Plants 1 and 2, respectively.
Yeocheon NCC initially considered closing Plant 3, which produces 470,000 tons of ethylene, but the likely plan is to shut down one of Plants 1 and 2, which produce about 900,000 tons. An industry insider said, “If Yeocheon NCC reduces 470,000 tons, it may not meet the overall reduction target for Yeosu,” adding, “While they could shut down Plant 3 and adjust production at the remaining facilities, it would be more advantageous in terms of operational efficiency and cost to shut down one large facility.”
Additionally, Yeocheon NCC is pursuing further facility consolidation with Lotte Chemical. Currently, only the general direction has been agreed upon, and specific details have not been finalized, but if consolidation proceeds, additional facility reduction is expected.
In Ulsan, a broad agreement has been reached between SK Geocentric, Daihan Oil Chemical, and S-Oil, and they have submitted an integrated operation plan to the government, with further consultations expected to follow. Industry insiders expect that instead of shutting down SK Geocentric’s 660,000 ton-scale NCC, SK Energy (a related company) will supply naphtha to Daihan Oil Chemical, while S-Oil and Daihan Oil Chemical will supply basic raw materials such as ethylene to SK’s polymer plants in a business structure reorganization.
Meanwhile, in Daesan, South Chungcheong Province, restructuring plans for Hanwha TotalEnergies, which produces 1.53 million tons of ethylene, and LG Chem’s plant with a capacity of 1.27 million tons were reportedly submitted together. However, in Daesan, HD Hyundai Chemical and Lotte Chemical have already agreed on consolidation and joint venture establishment, with up to 1.1 million tons of ethylene expected to be reduced, so additional facility reduction between the two companies is not expected to be significant. The Daesan area produces about 4.77 million tons of ethylene. An industry insider said, “Unlike Yeosu, the supply oversupply situation in the Daesan region is not very serious,” adding, “Therefore, the reduction scale for Hanwha Total and LG Chem will not be large.”
Accordingly, industry insiders expect that production facility reduction of 3.66 million tons + alpha (α) will proceed depending on the additional ethylene reduction scale of Lotte Chemical in Yeosu complex and Hanwha Total-LG Chem in Daesan complex. The government’s reduction target presented in August (up to 3.7 million tons) is expected to be easily achieved.
With major companies in the three major domestic petrochemical complexes all submitting self-rescue plans, petrochemical industry restructuring is expected to begin in earnest. HD Hyundai Chemical and Lotte Chemical, which first submitted restructuring plans to the government last month, are expected to receive approval from the Business Restructuring Plan Review Committee this month, so companies that submitted self-rescue plans on Dec. 19 are expected to receive final approval after January next year.
