Petrochem profits plunge in Korea as industry faces threat from China

23-Nov-06

Petrochem industry in S Korea saw performance improve greatly over the last 3-4 years due to soaring demand from China. But as the Chinese counterparts expanded facilities and exports, cheap made-in-China products have taken over the markets and it seems that the petrochem industry in Korea may have to fight for their survival soon. The reason is that this sector is a large-scale process industry where competitors can catch up as soon as a certain amount of capital and facilities are in place. Korea's petrochemical industry exports over 50% of production, and cheap products from China and the Middle East will make it very difficult for them. Some in the industry predict a crisis in 2008. Korean petrochemical industries see their position weaken as China emerges as a formidable competitor. LG Chem, Honam Petrochemical and Hanwha Chemical saw operating profits and net income drop this year. This was due to the dual impact of rising feedstock prices and inability to hike prices as Chinese competitors churned out products on a massive scale in their new facilities. Foreign-invested Chinese petrochemical firms such as Shanghai SECCO and BASF-YPC are increasing their production rapidly, and petrochemical companies in the Middle East are expanding facilities on a large scale too.