South Korea is urging its struggling petrochemicals sector to slash excess capacity and restructure operations amid a global glut that has depressed petrochemicals margins and threatened the industry in many Asian and European countries.
China, South Korea, and other Asian petrochemical producers have faced free-falling margins in recent months, with many companies struggling to break even.
In Europe, the crisis in the petrochemicals industry has a different root cause – high energy costs – but the result is the same, a struggling industry.
South Korea has also suffered from the soaring petrochemicals capacity additions in China, where costs and products are much cheaper.
Amid the persistent global glut, the South Korean government said on Wednesday that the 10 largest domestic companies have agreed to restructuring, including by slashing their naphtha-cracking capacity by up to 25%. Naphtha is processed in steam crackers to produce ethylene, propylene, and other monomers used in the production of various plastics and synthetic products.
The South Korean companies’ executives on Wednesday signed an industry-wide restructuring deal, aimed at propping the ailing petrochemicals sector.
The petrochemical producers have agreed to cut their annual naphtha-cracking capacity by between 2.7 million and 3.7 million metric tons, the South Korean Industry Ministry said in a statement carried by The Korea Economic Daily.
Currently, South Korea has an annual naphtha-cracking capacity of 14.7 million tons. Reducing the capacity by up to 3.7 million tons would mean that South Korea’s producers will shut 25% of the annual capacity.
The 10 largest South Korean petrochemicals firms will now have to submit by the end of the year their plans on slashing capacity.
“The key to overcoming the current crisis is clear. Reduce capacity to tackle chronic oversupply and shore up the sector’s competitiveness,” Finance Minister Koo Yoon-cheol said in a separate statement and urged the companies to file their capacity-reduction plans as soon as possible.
By Charles Kennedy for Oilprice.com
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