Hanwha and DL Likely to Renew Long-Term Contract with Yeocheon NCC... 'Dispelling Sale Controversy'

Domestic 3rd Largest NCC... Three Years of Losses Due to Poor Market Conditions
"Difficult to Recover Medium- to Long-Term Profitability"

Hanwha Solutions and DL Chemical have reached a consensus to extend the long-term petrochemical product sales contract with Yeocheon NCC, which is set to expire at the end of this year.

There were concerns that Yeocheon NCC, the third-largest domestic producer with an annual ethylene capacity of 2.28 million tons, might undergo restructuring due to the petrochemical industry downturn. However, both companies have decided to maintain the current system. Yeocheon NCC is a 50-50 joint venture established by Hanwha and DL in 1999.

According to industry sources on the 17th, Hanwha Solutions and DL Chemical recently finalized the decision to extend the contract with Yeocheon NCC. Since 2006, Hanwha and DL have each received annual supplies of 1.4 million tons and 735,000 tons of ethylene, and 150,000 tons and 55,000 tons of propylene, respectively, from Yeocheon NCC under this contract, which was set to expire at the end of this year. It is reported that they had been deliberating on contract renewal until recently. This led to rumors in the petrochemical industry that one party might exit the joint venture.

With the two companies deciding to extend the long-term sales contract, the crisis rumors surrounding Yeocheon NCC appear to have passed a critical point. Yeocheon NCC’s financial structure has deteriorated due to declining performance.

The company produces basic petrochemical raw materials such as ethylene, propylene, benzene, toluene, xylene, styrene monomer, and butadiene. However, the spread (margin difference) of major products has weakened, resulting in a cumulative operating loss of 105.5 billion KRW in the third quarter of this year. Although sales reached 4.8719 trillion KRW, a 20.3% increase compared to the same period last year, losses have accumulated with increased production. Consequently, losses are expected for three consecutive years since 2022.

Recently, the company’s credit rating has also declined. Korea Ratings downgraded Yeocheon NCC’s unsecured bond credit rating from ‘A/Negative’ to ‘A-/Negative’.

Korea Ratings stated, "Due to the business structure producing only basic feedstocks (volatile liquids derived from petroleum, etc.), the ability to defend profitability is insufficient, making it difficult for medium- to short-term profit generation to recover significantly." They added, "Although there are plans to increase capital by about 100 billion KRW through land revaluation in December, short-term net losses are expected due to poor market conditions, and the financial structure is likely to continue deteriorating."

In October, Yeocheon NCC attempted to raise 100 billion KRW through corporate bonds but received purchase orders for only 4 billion KRW. In March, the company also failed to meet its target in a demand forecast.

A DL Group official commented on the rumors of Yeocheon NCC’s sale, saying, "Although the NCC market is sluggish, selling the business now due to difficulties could increase business risks. The joint venture is a strategic decision made at the group level, so there is no possibility of change in the near term."