Factories That Led Industrial Development... Into History

[Asia Economy Reporter Park So-yeon] Recently, the refining and petrochemical industry, which has faced compounded adversities including the novel coronavirus disease (COVID-19), is undergoing a series of restructurings such as business suspensions and voluntary retirements.

Although the industry explains that these measures are taken due to prolonged economic downturn and that COVID-19 is not the direct cause, there are forecasts that restructuring will further spread and accelerate triggered by the COVID-19 pandemic.

SK Comprehensive Chemical will halt the naphtha cracking (NCC) process at SK Ulsan Complex starting December, and suspend the synthetic rubber manufacturing process (EPDM) within the second quarter.

SK Comprehensive Chemical’s NCC plant, which began commercial operation in 1972 during the Korea National Oil Corporation era as the first of its kind in Korea, has an annual production capacity of 200,000 tons. Halting this process will reduce the company’s annual ethylene production from 800,000 tons to 600,000 tons.

SK Comprehensive Chemical stated, "The suspension of the Ulsan NCC process and EPDM process is unrelated to the COVID-19 situation but due to aging facilities weakening competitiveness," adding, "Since contracted volumes must be supplied, we will gradually stop operations while conducting safety inspections."

Domestic solar material companies, unable to withstand China’s low-price offensive, have ceased their businesses and shifted focus to expanding high value-added products.

OCI and Hanwha Solutions simultaneously discontinued their solar polysilicon businesses. Solar polysilicon belongs to general-purpose products where it is difficult to differentiate quality from Chinese products, and the production cost of domestic companies is nearly twice that of Chinese products, expanding the deficit.

OCI recorded an operating loss of 180.7 billion KRW last year. The deficit has expanded for five consecutive quarters since the fourth quarter of 2018.

Accordingly, OCI decided to stop solar polysilicon production at its Gunsan plant earlier this year and convert it into a semiconductor-grade polysilicon production plant.

Solar polysilicon production will be handled at the Malaysian plant to reduce costs by more than 25%, and the semiconductor-grade polysilicon production line will start operating from May, aiming to produce 1,000 tons this year and increase production to 5,000 tons by 2022.

Hanwha Solutions also withdrew from the polysilicon business, which had recorded losses for several years. As a result, the residual value of related production facilities was fully reflected as a loss in last year’s performance, turning the net income into a net loss of 248.9 billion KRW.

Hanwha Solutions is focusing on promoting a circular economy and concentrating on high value-added products such as eco-friendly plasticizers (EcoDechi) and waterborne resins.

The refining industry has also entered a production cut phase due to prolonged recession, demand decline caused by COVID-19, and the plunge in international oil prices.

SK Energy, the number one domestic operator, lowered its operating rate by 10 to 15% from 100% starting this month, and Hyundai Oilbank also adjusted its operating rate to about 90%.

GS Caltex and S-Oil are still operating their plants normally, but the industry expects that if the situation prolongs, lowering operating rates will be inevitable.

With the prolonged industry downturn compounded by the COVID-19 shock, the pace of voluntary retirements is also accelerating.

OCI is accepting voluntary retirement applications from all employees, and S-Oil is also promoting voluntary retirement.

The industry views the first quarter of this year, when the COVID-19 and oil price shocks overlapped, as the "bottom" with the worst performance. As the COVID-19 situation calms and demand recovers, and benefits from cost reductions due to low oil prices become fully realized, a rebound is expected after the second quarter.

Portfolio adjustments through expansion of high value-added businesses are considered essential for companies’ survival.

Hanwha Total is currently working to expand its high value-added polyethylene (PE) and polypropylene (PP) plants by 400,000 tons annually each by 2021.

Lotte Chemical also announced expansion of its high value-added specialty business through a merger with Lotte Advanced Materials and acquired shares of Belenko, the number one company in Turkey’s engineered stone market, in January.

Refining companies are taking the production of high value-added products such as low-sulfur fuel oil, in response to the IMO2020 sulfur content regulations for marine fuels implemented this year, as a new breakthrough.

Refining companies including SK Energy, GS Caltex, S-Oil, and Hyundai Oilbank are competing to increase investments in low-sulfur fuel production facilities.