HD Hyundai, LOTTE, and Hanwha, which have petrochemical corporations as subsidiaries, are suffering from a recession in the petrochemical industry. The oversupply from China and the entry of Middle Eastern oil-producing countries into the petrochemical industry make it difficult for petrochemical corporations with a business structure focused on general-purpose products to maintain a competitive edge. Industry insiders note that after securing time through mergers and acquisitions, these corporations need to restructure their business toward high-value-added products (specialties).
According to the petrochemical industry on the 12th, LOTTE Chemical (-126.6 billion won), HD Hyundai Chemical (-118.8 billion won), LG CHEM's petrochemical sector (-56.5 billion won), and Hanwha Solutions' chemical sector (-91.2 billion won) all recorded losses in the first quarter of this year. These companies share the commonality of primarily producing general-purpose products using naphtha cracking facilities (NCC).
During the COVID-19 pandemic, a business structure centered on general-purpose products was not problematic due to high demand for petrochemical-related products like masks and gloves. However, as the pandemic ended and the domestic market in China, where demand for petrochemical products is high, did not recover, the oversupply from China struck companies focusing on general-purpose products hard. Kumho Petrochemical, which does not have NCC, recorded an operating profit of 197.8 billion won in the first quarter of this year, distancing itself from the impact of oversupply from China.
Domestic petrochemical corporations, centered around LOTTE Chemical, are seeking to sell businesses and reorganize the industry. The Korea Chemical Industry Association, which includes major petrochemical corporations, commissioned consulting services from the Boston Consulting Group (BCG) regarding industry restructuring and submitted the results to the Ministry of Trade, Industry and Energy in March. The government released measures to enhance the competitiveness of the petrochemical industry last December but hopes that petrochemical corporations will autonomously merge businesses or restructure.
LOTTE Chemical and HD Hyundai Group are reportedly exploring a plan to integrate the NCC currently operating in the Daesan petrochemical complex in South Chungcheong Province. HD Hyundai Oilbank, a subsidiary of HD Hyundai Group, and LOTTE Chemical jointly operate a venture, HD Hyundai Chemical, with respective investments of 60% and 40%. Various options are being discussed, including transferring LOTTE Chemical's facilities in the Daesan complex to HD Hyundai Chemical and additional investment from HD Hyundai Group to operate as a single entity.
Some in the petrochemical industry hope that a groundbreaking proposal will come from the Lee Jae-myung administration early on. President Lee had promised during the presidential campaign to enact a special law for the petrochemical industry, stating that "the petrochemical sector in the southern industrial belt is deteriorating."
A petrochemical industry insider said, "If business restructuring and adjustments are undertaken among corporations, that corporation could become subject to the Fair Trade Commission's monopoly review. For the restructuring of the petrochemical industry to proceed swiftly, a presidential council with multi-departmental involvement needs to be established."
Another petrochemical industry insider remarked, "Even with government support, petrochemical corporations need to shift from mass production of general-purpose products to specialized small-batch production to enhance competitiveness."