[Exclusive] Coupang to Start Direct Production of Refrigerants, the 'Heart of Cold Chain'

Large-scale Hiring of Production Workers at Yongin Factory... Executive-level Engineers Also Recruited Last Year
Dry Ice Supply Shortage Behind This... 200,000 Tons Deficit Last Year Alone
Prolonged Supply Instability Expected... Possibility of Procuring Raw Materials Overseas

[Image source=Yonhap News]

[Asia Economy Reporter Lee Junhyung] Domestic e-commerce company Coupang is producing refrigerants, a core component of the cold chain (low-temperature distribution system), on its own. Although demand for refrigerants has surged with the growth of the fresh food delivery market, supply has not been smooth due to the impact of COVID-19 and other factors. As the importance of the cold chain continues to be emphasized daily, there is speculation that Coupang may procure refrigerant raw materials from overseas.

Large-scale hiring for production positions underway... ‘Supply shortage’ is the background

According to industry sources on the 20th, Coupang’s private brand (PB) specialized subsidiary CPLB has begun operations to produce dry ice, a type of refrigerant, at its factory located in Cheoin-gu, Yongin, Gyeonggi Province. CPLB started recruiting production personnel from the 12th of this month. The number of hires is in the hundreds. Previously, CPLB also posted a job announcement last month for a managerial position in the dry ice business division.

It is understood that Coupang had been preparing to produce refrigerants directly for at least a year. Coupang maintained contracts with some dry ice suppliers only until last year. Additionally, in the second half of last year, a gas engineer with over 10 years of related experience joined CPLB at the executive level.

CPLB, a subsidiary of Coupang, has been recruiting dry ice production personnel since the 12th of this month. The number of recruits is in the hundreds.
[Photo by Coupang Recruitment Website Capture]

The background for Coupang’s entry into dry ice production lies in the supply shortage that occurred last year. Dry ice is solid carbon dioxide compressed from liquid carbon dioxide (LCO2) at high purity. Carbon dioxide is captured during the refining of crude oil by refineries or the production of ethylene, a raw material for plastics, by petrochemical companies.

However, due to the economic downturn caused by COVID-19, factory operating rates sharply declined, shrinking the supply of carbon dioxide. According to the Korea High Pressure Gas Industry Cooperative Federation, the operating rates of refinery and petrochemical plants last year were in the 50% range, down about 20-30 percentage points compared to the previous year. Liquid carbon dioxide and dry ice manufacturers could not increase production due to a shortage of raw materials. Industry sources explained that last year’s liquid carbon dioxide production was about 200,000 tons short compared to the annual demand of 700,000 tons.

Supply instability expected to continue long-term... possibility of building a global supply chain

Demand continues to rise daily, so supply instability is expected to persist long-term. The direct cause was the explosive increase in delivery demand as the contactless economy expanded. Retailers such as Market Kurly and Shinsegae competitively expanded their fresh delivery businesses, further fueling the surge in demand. The performance of domestic liquid carbon dioxide and dry ice manufacturers also reflects the significantly increased demand. Last year, Taekyung Chemical, the industry leader, recorded domestic dry ice sales of 12.9 billion KRW, an increase of about 139% compared to 5.4 billion KRW the previous year. During the same period, the company’s operating profit surged 546.2% to 7.7 billion KRW from 1.2 billion KRW the previous year.

The economic recovery centered on the semiconductor industry also fueled demand. Liquid carbon dioxide is a key raw material in semiconductor production, used in wafer cleaning and photolithography processes. Expectations for a semiconductor supercycle (long-term boom) this year have led to a sharp increase in demand for liquid carbon dioxide in the semiconductor industry. Additionally, liquid carbon dioxide is widely used across industries, including in shipbuilding, which has recently seen improved business conditions, where it is used for welding.

[Image source=Yonhap News]

Given these circumstances, there is also speculation that Coupang may procure refrigerant raw materials through imports. High domestic dependence on carbon dioxide supply has been cited as one of the causes of the supply shortage. According to the industry, the dry ice market itself was not large, and all domestic manufacturers were small to medium-sized enterprises, so there was neither reason nor capacity to expand raw material procurement networks overseas.

However, considering the growth potential of the cold chain market and Coupang’s capital secured through its recent initial public offering (IPO), there is a significant possibility that it will establish a global procurement network to ensure stable supply of dry ice. In fact, last month’s job posting for a managerial position in Coupang’s dry ice division listed key duties such as ‘managing multiple liquid carbon dioxide suppliers located in China, Singapore, etc.’ and ‘managing the liquid carbon dioxide import process.’ An industry insider stated, “Coupang also formed a partnership with a Chinese refrigerant company last year due to the supply shortage.”

The rising unit price also supports this outlook. Due to supply shortages relative to demand, dry ice prices in the market have steadily increased. According to Taekyung Chemical, the price per kilogram of dry ice last year was 550 KRW, about 14% higher than 483 KRW the previous year.