Major petrochemical companies in South Korea, which have been shut down due to oversupply from China and the global economic downturn, have recently entered a series of factory demolition (scraping) procedures, putting them at a critical point, as per Yonhap News.
Amid growing concerns that the government is missing a "golden time" for the recovery of the petrochemical industry, some point out that a government-level decision is needed to restructure the industry.According to the petrochemical industry on the 12th, major petrochemical production plants such as LG Chemical, Lotte Chemical, and Yeocheon NCC are being demolished in series. LG Chem, which suspended the operation of its Styrene Monomer (SM) plant in Yeosu in March last year, recently decided to remove (scrap) some facilities at its Gimcheon and Najoo plants due to deteriorating profitability. Scraps are actually the preparation stage for the withdrawal of factories by completing the injection of raw materials in existing factories and completely emptying equipment pipes. The two plants are smaller than facilities in major industrial complexes, but they have been subject to production efficiency due to decreased profitability.
At the Gimcheon plant, the production facility of Superabsorbent Resin (SAP), which has an annual production capacity of 90,000 tons, will be demolished. At the Naju plant, a 20,000-ton annual Styrene Acrylate Latex (SAL) production facility will be organized. The facility, which has been operating stably so far, is in the process of reorganizing due to aging facilities and intensifying competition with China. ?An LG Chem official said, "It is part of the petrochemical business efficiency work," adding, "However, it is not a withdrawal of the business, and we will continue the business through manpower restructuring and production efficiency."
Yeocheon NCC, which was on the verge of bankruptcy, also began suspending operations at Yeosu's 3rd plant from the 8th. There are concerns that a liquidity crisis will occur if funds are not received immediately.Lotte Chemical also decided to scrap three of the five lines of the second plant in Yeosu in December last year. Due to the nature of the petrochemical industry that rides the industrial cycle, temporary suspension or shutdown occurs flexibly, but the decision to remove the plant actually means abandoning the facility, which has a greater impact. Lotte Chemical's plant 2 of Daesan Ethylene Glycol (EG) has also been shut down for about a year and a half.
Petrochemical companies are also focusing on securing cash by selling non-core businesses or themselves. For Lotte Chemical, which is strengthening its "asset lightweight (asset light)" strategy, a series of factory demolitions are expected to be inevitable if the sluggish business conditions prolong. Lotte Group has placed Lotte World Tower, the group's symbol, as collateral in the financial sector to resolve the liquidity crisis at Lotte Chemical. LG Chem recently secured nearly 2 trillion won in funds by selling its water treatment filter business and aesthetic division.The petrochemical industry points out that the suspension of plant operations and the sale of non-profitable assets have led to the demolition of some plants as a sign that the situation has worsened to the point where it is difficult to endure any longer. Restructuring of the workforce is also inevitable.There are many voices for the need for early restructuring in the petrochemical sector, but discussions on restructuring at individual corporate units are sluggish. Daesan Industrial Complex discussed restructuring over HD Hyundai Chemical, which is jointly operated by Lotte Chemical and HD Hyundai Oil Bank, but failed to draw a sharp conclusion. In particular, some point out that discussions on restructuring between companies are not easy to proceed due to government regulations and monopoly issues.The industry is calling for more active government support. An official from the petrochemical industry said, "When switching to scrap, sales gaps and manpower adjustment burdens are inevitable. In the end, if the government fails to come forward, it is difficult to even take the first step of restructuring."Industry experts diagnose this atmosphere of spreading scrap decisions as a result of structural demand slowdown and oversupply problems beyond the short-term economic slump. Since the 2000s, China's expansion of large-scale petrochemical facilities has disrupted the balance of global supply chains, making it difficult for domestic companies to maintain price competitiveness in the core raw material sector. mrchub.com