The Korean petrochemical industry, hit hard by oversupply from China, is undergoing restructuring. However, delays in business realignment are raising concerns about export competitiveness. As China increases its self-sufficiency in petrochemical products and expands exports of general-purpose products, the position of Korean companies is becoming increasingly precarious. The government's efforts to restructure the petrochemical sector are also stalling due to prolonged negotiations among companies.
According to the China Petroleum and Chemical Industry Federation, China's synthetic resin exports surged by 41.5% in the first half of this year compared to the same period last year. Exports of key general-purpose products, polyethylene (PE) and polypropylene (PP), increased by 258.1% and 58.2%, respectively. This growth is driven by large-scale production facilities that are enabling China to expand its supply beyond its domestic market.
China's reliance on imports is rapidly decreasing. Market research firm Longzhongzhun reports that China's PE self-sufficiency rate rose from 72% in the first half of last year to 84% in the first half of this year, a 12 percentage point increase. PE production capacity grew from 38.74 million tons to 41.44 million tons, a 7% increase, while imports dropped from 6.92 million tons to 5 million tons, a decline of about 28%.
As China boosts domestic production and reduces imports while increasing exports, Korean petrochemical companies are facing a dual challenge of declining exports and intensified competition. This decline in export volume is evident. According to the Ministry of Trade, Industry and Energy, petrochemical exports last month totaled $3.95 billion, a 5.1% increase in value, but the volume plummeted by 19.1%. The average export price for petrochemicals was $1,416 per ton, up 30.0% from the previous year.
The government explains that China's increased production and self-sufficiency are contributing to global oversupply. An official from the Ministry of Industry stated, "As China expands its domestic facilities, imports will inevitably decrease. General-purpose products previously exported to China need to be redirected to other markets, but fully replacing them is challenging, and we must compete with China in other export markets such as Southeast Asia and Europe."
In response, the government is pursuing restructuring to rationalize petrochemical facilities and transition to high-value-added products, but progress has been slow. Last August, the government signed a voluntary agreement with the industry to reduce domestic naphtha cracking facility (NCC) production capacity by 2.7 million to 3.7 million tons annually. However, only two projects, Daesan No. 1 and Yeosu No. 1, have received approval for business realignment so far.
The planned capacity reductions for these two projects total 2.49 million tons, falling short of the government's minimum target by 210,000 tons. The remaining three projects are still in the negotiation phase among companies, and the approved capacity reductions are expected to take several years to implement.
The government has indicated that the instability in naphtha supply due to the conflict in the Middle East has impacted the restructuring timeline. The shortage of raw materials has made it difficult to operate existing facilities normally, making the stable supply of petrochemical products a priority.
An official from the Ministry of Industry remarked, "While there has been some delay in business realignment, the issue of global oversupply remains unresolved, making restructuring essential. We are encouraging swift negotiations among companies, but it is difficult to determine a completion timeline."
* This article has been translated by AI.
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