Korea, China, Japan’s drastic ethylene capacity cut boosts hopes for industry rebound

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The expected petrochemical shakeout, a 13.5-million-ton reduction, will be a turning point in the sector's push to exit years of losses, as per Kedglobal.East Asia’s petrochemical industry is entering its largest restructuring in decades, with planned closures of aging naphtha cracking facilities in China, Japan and South Korea expected to remove more than 13 million tons of ethylene capacity by 2027.The long-awaited shakeout could finally restore balance to a sector that has been battling overcapacity for most of the past decade, analysts said.“If all goes to plan, regional ethylene capacity will fall by 13.5 million tons a year from forecasts by 2027,” said an industry executive on Wednesday. “That could be the turning point that allows the industry to finally exit years of losses.”The expected cuts, equivalent to more than the combined production of nine major Korean producers, including LG Chem Ltd. and Lotte Chemical Corp., underscore the scale of the shift, analysts said.China, Japan and Korea account for 45% of the global ethylene production.Ethylene, a building block for plastics, fibers and packaging, is the sector’s key profitability measure.Signs of an industry rebound are already looming.The spread between ethylene and its main feedstock, naphtha, has climbed 21% over the past three months to $211 a ton, according to Korea’s industry ministry. The spread rose 33.2% from the average in January.While still below the $250 threshold typically needed for profits, the recovery has fueled expectations that petrochemical firms such as Lotte Chemical and LG Chem could swing back into the black as early as next year.China’s planned retrenchment will have the biggest impact.Beijing’s National Development and Reform Commission and four other ministries have signaled plans to eliminate crackers more than 20 years old.Analysts expect about 7.4 million tons of capacity to be retired from China’s annual production capacity of 78.2 million tons by 2027, with further cuts possible if plants with capacity below 300,000 tons a year are consolidated, according to a research report by Seoul-based Shinyoung Securities Co.Industry restructuring is also underway in Korea, where a detailed plan to reduce ethylene production by as much as 3.7 million tons is scheduled for release next month.Korea is one of the world's largest importers of naphtha, an oil product that is...

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