Yeocheon NCC Explosion Accident Halts Operation of Plant 3
PE Product Prices Raised by 150,000~200,000 Won
Hanwha Solutions "Unrelated to Accident"
SMEs "Prices Have Never Risen This Much"
[Asia Economy Reporter Choi Dong-hyun] Hanwha Solutions is accused of passing on losses caused by production disruptions at its subsidiary Yeocheon NCC, where an explosion occurred last month, to small and medium-sized enterprises (SMEs) through price increases. It is said that when the major shareholder’s profits were about to decrease due to the subsidiary’s production disruption, they chose so-called ‘outsourcing of costs,’ burdening SMEs that have no price defense rights.
According to related industries on the 17th, Hanwha Solutions notified its clients earlier this month that it would raise prices for polyethylene (PE) products. Ethylene vinyl acetate (EVA), used in solar modules and shoe soles, and low-density polyethylene (LDPE), the raw material for plastic bags, were raised by 150,000 KRW per ton compared to February. Linear low-density polyethylene (LLDPE), used for food packaging wrap, and high-density polyethylene (HDPE), the raw material for milk bottles, were increased by 200,000 KRW per ton each. The reasons cited for the price increase included international oil price trends, costs, and supply-demand conditions.
SMEs that purchase these products from Hanwha Solutions to produce finished goods are strongly opposing the price hike, saying it is related to the Yeocheon NCC explosion accident that occurred last month. A representative of an SME who requested anonymity said, “Even when international oil prices surged sharply in the past, product prices never jumped this much, and in the past year, price increases per ton were usually between 50,000 and 100,000 KRW.” He added, “Hanwha Solutions is recklessly raising prices to recover losses caused by the suspension of its subsidiary’s factory operations, causing damage to SMEs.” An executive of another SME lamented, “The company’s debt has piled up to tens of billions of won, and we can no longer endure.”
Hanwha Solutions significantly raised prices for PE products about 20 days after the fatal explosion at Yeocheon NCC’s Plant 3. The plant has been shut down for over a month due to the accident. The SMEs claim that since Hanwha Solutions receives a substantial portion of Yeocheon NCC’s profits as dividends every year, it is raising product prices to compensate for the expected decrease in revenue from Yeocheon NCC this year.
The delivery structure is ‘Yeocheon NCC → Hanwha Solutions → SMEs (semi-finished product manufacturers) or finished product manufacturers → distributors or consumers.’ SMEs are questioning why Hanwha Solutions sharply raised prices even though Yeocheon NCC, which supplies raw materials to Hanwha Solutions, did not increase its prices.
Yeocheon NCC is a joint venture equally owned by Hanwha Solutions and DL Chemical, with many executives, including CEO Choi Geum-am, coming from the Hanwha Group. Hanwha Solutions purchased raw materials worth 1.208 trillion KRW from Yeocheon NCC in the third quarter of last year alone. The dividends received from Yeocheon NCC amounted to 165 billion KRW (as of 2020), which accounts for 39% of Hanwha Solutions’ operating profit (425 billion KRW) that year, significantly impacting Hanwha Solutions’ earnings. Recent performance has not been good. According to Hanwha Solutions’ preliminary earnings announcement, the net loss attributable to owners of the parent company in the fourth quarter of last year was 174.1 billion KRW. The main cause was the deterioration of performance at affiliates such as Yeocheon NCC. Moreover, the Yeocheon NCC accident is a negative factor for Hanwha Solutions’ performance this year.
In response, Hanwha Solutions denied the connection between the explosion accident and the price increase. A Hanwha Solutions official said, “The price increase for domestic products was caused by the rise in naphtha prices.” He added, “We understand customers’ frustrations and difficulties due to the price increase, but many petrochemical companies have raised prices simultaneously recently, not just us.” Regarding the price increase despite no change in Yeocheon NCC’s supply prices, the official explained, “It is true that the accident affected ethylene supply, but the entire ethylene volume from Yeocheon NCC’s Plant 3 is for export, so it is unrelated to domestic supply price increases.”
The problem is that SMEs caught between large corporations cannot immediately apply the sharp price increases to their delivery prices. Related SMEs must purchase raw materials from the large corporation Hanwha Solutions to manufacture products and supply them on time, but they cannot promptly reflect the price increases in the prices of the finished products they sell. An executive of another SME said, “The price of LLDPE and HDPE purchased from Hanwha Solutions was around 1.2 million KRW per ton in January last year, but it rose to 1.8 million KRW this month and is expected to reach 2 million KRW in April.” He added, “EVA prices have even doubled in two years, but the delivery prices have only reflected about a 15% increase so far.”
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