South Korea’s chemical fiber industry witnesses oversupply of Purified Terephthalic Acid (PTA)

12-Aug-14
The chemical fiber industry is suffering from an oversupply of Purified Terephthalic Acid (PTA). PTA is a middle material produced from Paraxylene (PX) and is a feedstock of synthetic fibers, Polyethylene Terephthalate (PET) bottles, and film. As per businesskorea.co.kr, the market is in serious recession, as there is sluggish demand for polyester and Chinese companies to which Korean companies used to supply PTA are expanding their manufacturing facilities. According to Hyosung on August 2, operating profits in the chemical sectors during the second quarter were 29.6 billion won (US$28.7 million), a 35% decline from the same period last year. The chemical sectors of Hyosung consist of three business areas, polypropylene (PP) & dehydrogenated (DH) products, PTA and packaging, and due to the worsened profitability of PTA during the second quarter, lowered all sales revenues and operating profits. A Hyosung employee explained, “Even though PP & DH and the packaging businesses had better profitability during the second quarter due to increasing demand, PTA had constantly low sales and sales prices. This is largely because of the low demand of polyester and oversupply.” Related industries expect other PTA companies to score low during the second quarter as well. As China is self-sufficient in PTA these days, Korean companies do not have room to grow. China is planning to expand to 1.94 mln tons of PTA production this year, following last year’s 6.85 mln tons. An additional 3.4 million tons will be expanded next year, reaching 12.19 mln tons of expansion for three years total. This is more than double the initial shortage amount. Korean companies have been supplying this deficiency, but they cannot any longer due to oversupply in China. In Korea, Samsung General Chemicals has the biggest manufacturing volume of 2 million tons. Samnam Petrochemical (1.8 mln tons) of Samyang Corporation family, Lotte Chemical (1.05 mln tons), Taekwang Industrial (1 mln tons), and Hyosong (420,000 tons) are following. Among all, Lotte Chemical and Hyosung are in relatively better positions. As Lotte Chemical has a PET plant, and Hyosung could consume their own products through manufacturing PET and polyster, these two companies have little room to breathe. On the contrary, companies without internal demand have to either shut down their plants or explore new options. SK Petrochemical, a subsidiary of SK Global Chemical, actually shut down their 52,000 ton size PTA plant in Ulsan petrochemical complex early last month. SK Petrochemical is now considering whether to restart the plant or sell it off. Related industries are acknowledging this as a shutdown. As the oversupply in China following the immense expansion of Chinese companies will continue by 2020, SK Petrochemical might have exited. Samsung General Chemicals and Taekwang Industrial are trying to diversify sales outlets to destinations other than China. A Samsung General Chemicals employee said, “We are expanding sales outlets to the Middle East and Europe, since exports to China decreased. We are reacting with flexibility to adjust to market conditions.”
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