South Korea’s leading conglomerate SK Group is selling its entire 35% stake in Sinopec-SK Petrochemical, its joint venture with Chinese energy giant Sinopec – a retreat from the commodity chemicals sector as oversupply and falling margins weigh on the industry.
The sale is being led by SK Geo Centric Co., a subsidiary of SK Innovation Co., which has begun talks with China Petroleum & Chemical Corp., better known as Sinopec, the JV’s 65% stakeholder, and several other Chinese bidders, according to people familiar with the matter on Tuesday.
The transaction is expected to be priced around its book value of 819.3 billion won ($594 million), sources said.
Established in 2013 with a combined investment of 3.3 trillion won, the Wuhan-based plant was once the symbol of SK’s “China Insider” strategy.
The joint venture plant can produce 3.2 million tons of general-purpose chemicals annually, including 1.1 million tons of ethylene, generating annual sales of about 10 trillion won in its peak years.
A SUCCESS STORY TURNED BAD
or much of the past decade, the project was a rare success story.
In its first eight years, the joint venture posted a cumulative operating profit of nearly 2 trillion won, benefiting from supply shortages in ethylene, the key building block of the petrochemical industry.
But since 2021, the plant has racked up more than 1 trillion won in losses, squeezed by a surge in Chinese production capacity and stagnating domestic demand.
Ethylene output in China has nearly doubled to 60 million tons between 2020 and 2023.
“The restructuring of SK’s petrochemicals business is no longer confined to Korea. It is spreading to its overseas assets as well,” said an industry executive. “The group has made clear it will reduce businesses without a clear future, so further retrenchment in Ulsan cannot be ruled out.”
SK’S ABC STRATEGY
The retreat underscores a broader pivot by the Korean conglomerate toward what it calls an “ABC” strategy, short for artificial intelligence, batteries and chips.
SK has already closed or sold parts of its commodity chemical operations at home and abroad, including shutting one of its two naphtha cracking lines in Ulsan and seeking a buyer for the other.
In August, sources said SK Geo Centric is approaching foreign petrochemical firms to sell the overseas units it acquired from Dow Chemical and France’s Arkema in a bundled deal as parent SK Group accelerates restructuring efforts to secure fresh capital.
The sale also comes amid an industrywide restructuring drive in Korea.
Korea is one of the world’s largest importers of naphtha, an oil product that is broken down into chemicals used in plastics for automobiles, electronics, clothing and construction.
Korean companies have been among the most severely impacted by Beijing’s aggressive capacity expansion. With Chinese plants producing generic products at significantly lower costs, Korean firms have been under increasing financial strain.
SINOPEC, MOST LIKELY BUYER
Analysts said Sinopec, the world’s largest refiner with 252 million tons of crude processed last year and 13.5 million tons a year of ethylene production capacity, is the most likely buyer.
Full ownership of the Wuhan plant would enable the state-owned giant to streamline decision-making and integrate the facility into its comprehensive refining-to-chemicals supply chain, sources said.
Beijing’s tightening scrutiny of foreign stakes in strategic industries also strengthens the case for Sinopec to take full control, analysts said.
SK’S FUTURE BETS
Proceeds from the sale are expected to be channeled into SK’s future growth bets.
The conglomerate has pledged to invest 8.2 trillion won by 2030 into AI and semiconductors, including a large-scale AI data center in Ulsan developed with Amazon Web Services.
SK Hynix Inc., one of the world’s two leading memory chipmakers, is also stepping up advanced packaging capabilities for AI chips, while SK Innovation is developing energy storage and cooling systems tailored to data infrastructure.
“The era of commodity chemicals as a growth driver seems to be over for SK,” said a person close to the deal. “Its next chapter will be written in AI and chips, not ethylene.”
By Jin-Won Kim and Woo-Sub Kim
jin1@hankyung.com
In-Soo Nam edited this article.
