South Korea had 13.16 mln tpa of olefins production capacity

Over-capacity will become increasingly problematic at a time of depressed product prices and high feedstock costs, which are the results of the global economic downturn and a massive increase in capacity in Asia and the Middle East, according to BMI’s latest South Korea Petrochemicals Report. In 2008, South Korea had 13.16 mln tpa of olefins production capacity, of which 7.49 mln tpa was ethylene and 5.67 mln tpa was propylene. Aromatics capacity includes 3.98 mln tpa of benzene, 1 mln tpa of butadiene, 2.79 mln tpa of toluene, 4.47 mln tpa of xylenes, 670,000 tpa of cumene, 330,000 tpa of ethylbenzene, 280,000 tpa of cyclohexane, 200,000tpa of aniline and 80,000tpa of nitrobenzene. The polymers segment includes 4.12 mln tpa of PE, 3.79 mln tpa of PP, 1.38 mln tpa of PVC, 975,000 tpa of PS and 943,000 tpa of PET. The petrochemicals industry saw additional capacity in 2008, with Honam Petrochemical’s cracker in Yosu expanding ethylene capacity from 400,000 tpa to 750,000 tpa and propylene capacity raised to 375,000tpa. Additionally, in July 2008 the Lotte Daesan Petrochemical Company started up a new 300,000 tpa PP plant. The company also expanded its ethylene cracker to 1.07mn tpa from 500,000 tpa. The expansion also includes a 130,000 tpa LLDPE capacity at Daesan. LG Chem also raised capacity at its rubber complex at Daesan between July and September 2008. The methacrylate-butadiene rubber unit was expanded from 30,000 tpa to 50,000 tpa, butadiene rubber capacity rose from 80,000 tpa to 100,000 tpa and styrene butadiene rubber capacity expanded from 125,000 tpa to 135,000 tpa. These expansions occurred at a time when the industry was faced with diminishing margins, leading to cuts in production. Consequently, South Korea is left with substantial over-capacity, with new capacity under-achieving. A rapid growth in capacity in the Middle East and Asia comes at a time when South Korean producers are themselves set to increase capacity. In 2009, Samsung Total Petrochemicals plans to raise ethylene capacity by 100,000 tpa to 950,000 tpa. A further 100,000tpa of ethylene capacity is due to come online in 2010 at LG Chem’s Yosu cracker. In 2011, South Korea will witness new capacities in the aromatics sector, with an additional 540,000tpa of benzene and around 1.16 mln tpa of paraxylene. BMI doubts that the Asian petrochemicals market cycle will pick up before H2 2010, which means that cracker capacity utilisation will be cut to respond to declining demand further downstream. Consequently, capacity additions will simply lead to further non-performing surplus capacity. South Korea comes third in BMI’s Petrochemicals Business Environment Rankings for Asia with 76.6 points, 0.6 points behind Taiwan and 0.7 points ahead of China. While the country has a large and fully integrated petrochemicals industry, its score is pulled down by long-term risk factors that impact negatively on the risk to realisation of potential returns on investment in the sector. Moreover, with overcapacity becoming an increasing problem amid diminishing margins, it is unlikely that the country will see much more in the way of significant new investment in petrochemicals capacity. As such, it could fall in rank in the years ahead.