Cracks in China’s Supply Chain Also Burden Petrochemical and Steel Companies [Korea-China Supply Chain Diagnosis]

Supply Chain Analysis Report ④ Petrochemicals & Steel
Petrochemical Products, China's Largest Importer Up 40%
Concerns Over Increased High-Value Self-Sufficiency in China
Tungsten Oxide Dependence on China at 94.7%

[Asia Economy Sejong=Reporter Dongwoo Lee] The petrochemical industry is highly dependent on exports to China, and there is an analysis that domestic companies could inevitably be hit if China's supply chain is disrupted. Although the dependence on exports to China has been steadily improving, China still accounts for 40% of South Korea's petrochemical product exports, making it the largest importer.

According to the Korea International Trade Association on the 9th, last year, the export dependence on China for the 'petrochemical intermediate materials' category ranked first at 71.9%. China accounted for $5.023 billion out of the global export amount of $6.99 billion for this category. In the case of 'petroleum products,' the export dependence on China is relatively low at 17.9%, but it is a major item ranking fourth in South Korea's export amount to China, following semiconductors, synthetic resins, and flat panel displays. South Korea reduced the share of China in petrochemical product exports from 51% in 2017 to 43% in 2020, but the export dependence remains high.

The problem is that with China's industrial advancement, the self-sufficiency rate in this industry has rapidly increased, making import substitution possible at any time. In fact, China's self-sufficiency rate for paraxylene (PX) surged by 20.7 percentage points from 56.5% in 2015 to 77.2% in 2020. For styrene monomer (SM), used as a raw material for styrofoam, the self-sufficiency rate has reached 102.9%, enabling complete self-sufficiency. China has recently raised the self-sufficiency rate for high value-added products through technological accumulation, moving beyond basic oil fractions with relatively low entry barriers. There are concerns that if the IPEF (Indo-Pacific Economic Framework) is fully operational, China may reduce its imports of petrochemical items.

Conversely, the high dependence on Chinese imports for key raw materials in the steel sector is also a source of concern. The dependence on China for tungsten oxide is 94.7%, and 83.5% of the demand for lithium hydroxide, a core material for secondary batteries, is imported from China. In the petrochemical field, 64.1% of ethyl acetate, a key material, is imported from China. If China implements a 'weaponization of resources' strategy by controlling exports of key raw materials, incidents like last year's urea water shortage could recur.

Professor Ingyo Jung of Inha University's Department of International Trade said, "While IPEF has clear advantages in diversifying supply chains centered on the United States, it may be difficult to find new substitutes for major raw materials currently imported from China in the short term, so caution is necessary."