As China uses coal to increase self-sufficiency, Korean petrochemical makers face stiffer challenges

With the South Korean petrochemical industry threatened by the onslaught of cheap products from the Middle East and market expansion by US companies trading in shale gas, coal will become a new factor in the equation, says the LG Economic Research Institute. As reported by hani.co.kr, according to the report, with more high quality coal-using facilities in China having opened since 2010, more aggressive investment has been made recently in facilities for the raw materials needed for coal-based plastics (PE, PP) and for polyester. While countries around the world have pursued research and development into making chemical products with coal for the past 30 years, the economic feasibility of such products has declined because they have been determined to hold less potential for commercialization because they cause more pollution than petroleum-based products do. The reason China has been concentrating on coal chemistry despite these factors is that it wants to find a solution for pressing domestic problems. China’s average self-sufficiency ratio for naphtha is fairly low, at 60-70%. Another factor affecting China’s development of coal chemical technology is its goal of energy security, the report says. In contrast with China’s abundant reserves of coal, the country’s dependence on imported petroleum is around 50%. Another reason that China is desperate to make use of its coal is to promote industrial growth in the Chinese interior, where there are rich coal deposits. The problem is that China is the major market for Korean petrochemical companies, accounting for 50% of their exports. If China uses coal to increase its self-sufficiency, it would threaten Korean companies over the long term. While it is still difficult to predict the extent to which this will be put into effect, China is planning to replace 20% of its production of olefin (one of the basic materials used for making petrochemical products) with coal by 2016. Considering that this accounts for 18% of the world‘s production capacity, the scale of this could be significant. In 2012, major Korean companies dealing in petroleum, such as LG Chem, Lotte Chemical, and Hanhwa Chemical, saw their operating profits cut in half. While the primary reason was the global economic recession, other factors that should be considered include the increased flow of low-priced products from the Middle East using inexpensive raw materials, the slowing of economic growth in China, and the rise in China’s self-sufficiency resulting from expanded investment in petrochemical facilities.