Ethylene with Nowhere to Go Due to Petrochemical Slump... 'Record High Exports' [Petrochemical Crisis]

South Korea Cedes Downstream Market Dominance to China
Ethylene Margins Remain in Deficit Structure... Facing a Dilemma
Crisis Deepens Amid Slow Restructuring... Relying Only on Internal Measures

Editor's NoteThe domestic petrochemical industry has fallen into an unprecedented structural recession. The cyclical industry, which used to experience booms and busts depending on the economy and supply-demand, is now hampered by the dual challenges of oversupply from China and environmental regulations. Both the government and the industry are voicing that the 'golden time' to turn this crisis into an opportunity through 'selection and concentration' must not be missed. Asia Economy examines the current status and challenges of the domestic petrochemical industry in a three-part series.

Last year, South Korea's ethylene exports reached an all-time high. Ethylene is a basic raw material for synthetic resins such as polyethylene, and a significant portion is typically used domestically. However, unlike previous trends, exports have surged significantly. While export growth generally has a positive impact on the economy, last year's increase in ethylene exports tells a different story. This is largely because the production of basic feedstocks was not properly absorbed downstream in synthetic resin manufacturing and other sectors. Amid tariff pressures from the U.S. and the accelerating downstream offensive from China, the rise in ethylene exports is interpreted as a signal of a structural crisis in Korea's petrochemical industry.

According to the Korea Chemical Industry Association on the 4th, South Korea's ethylene export volume last year totaled 1.849 million tons, marking the highest annual figure ever. Compared to 2020 (848,000 tons), this is more than double.

The increase in ethylene exports is closely related to the performance of the domestic petrochemical industry. Ethylene, known as the 'rice of petrochemicals,' is used as a raw material for various plastics, rubber, and fibers, but production of these derivatives has declined. In particular, exports of six representative ethylene-based derivatives?high-density polyethylene (HDPE), ethylene vinyl acetate (EVA), low-density polyethylene (LDPE), linear low-density polyethylene (LLDPE), ethylene glycol (EG), and styrene monomer (SM)?have decreased by about 5% compared to five years ago.

On the other hand, the operating rate of naphtha cracking centers (NCC), which produce ethylene, remained at 81.7% last year despite the decline in derivative production. Ultimately, the surplus ethylene was pushed overseas through exports.

South Korea Loses Downstream to China

The problem is even greater considering that South Korea's ethylene exports are headed to China. The proportion of ethylene exports to China has consistently remained in the 80% range over the past five years, regardless of overall export volume fluctuations. Historically, South Korea's strategy was to produce ethylene by cracking crude oil into naphtha and export high value-added processed products to secure profit margins. However, recently, China has been dominating the processed product market through improved manufacturing technology and price competitiveness.

The Ethylene Project Phase 3 and Polycarbonate Project, operational since 2021 at the Huizhou Daya Bay Petrochemical Industrial Park in Huizhou, Guangdong Province, China. Photo by Xinhua News Agency

Under government leadership, China has significantly expanded its petrochemical facilities. It has increased ethylene production itself while rapidly growing its capacity to import ethylene and produce processed products. According to Chinese steel media MySteel, China has improved its self-sufficiency rate from upstream products that produce basic feedstocks to downstream derivatives such as polypropylene (PP), currently exceeding 100%. When synthetic resins are made in China using ethylene exported from South Korea, domestic companies face even greater price competition. An industry insider analyzed, "China operates downstream facilities using ethylene received from South Korea," adding, "a 'reversal phenomenon' has appeared in product group competition."

Losses Increase with Sales... Ethylene Margins in 'Deficit Structure'

Ethylene sales are also failing to generate profits. Due to ongoing global oversupply, ethylene market prices have not surpassed the breakeven point for over a year. The 'ethylene spread,' which refers to the pure margin excluding the cost of the raw material naphtha, dropped from $351 per ton in 2020 to a low of $170 per ton in 2024, recovering slightly to $218 per ton in March 2025. This remains well below the breakeven range of $250?300 per ton.

Even with losses, factories cannot simply shut down. Due to the nature of petrochemical processes as capital-intensive industries, turning plants on and off incurs significant costs. Maintaining NCC operating rates in the 80% range, despite losses, is considered less damaging than the worst-case scenario of halting operations.

The global market's supply-demand imbalance shows no signs of short-term resolution. Particularly, China and Middle Eastern countries are rapidly expanding large-scale production facilities, pushing the market into an oversupply state. This year, integrated refining and petrochemical complexes (COTC) capable of producing petrochemical products will emerge in oil-producing Middle Eastern countries, including the Oman Du Project, UAE Borouge 4 Project, and Saudi Yanbu Project. The global oversupply of petrochemical feedstocks such as ethylene is expected to increase to 6,100 tons by 2028.

Slow Restructuring in South Korea, Struggling with Endurance, Production Cuts, and Divestitures

Domestic petrochemical companies are pursuing new businesses to reduce raw material production costs and restructuring, but progress is slow. The ethane joint project among LG Chem, HD Hyundai Oilbank, and Hanwha Total Energy, which aimed to cooperate to overcome the crisis, has shown no significant progress and remains at a standstill. Since the end of last year, these three companies have collaborated to build an ethane terminal in the Daesan Industrial Complex, Chungnam, but have not taken active steps due to burdens such as ancillary costs. Although aiming for terminal completion by 2028, investment coordination has yet to be finalized. Ethane is a basic raw material that can reduce ethylene production costs compared to NCC.

Some companies have started downsizing as part of securing profitability. LG Chem has halted operations at its biodegradable plastic (PBAT) plant in the Daesan petrochemical complex, Chungnam, and the SM plant in Yeosu, Jeonnam. Lotte Chemical has stopped some production lines at its Yeosu Plant 2. Yeochun NCC has conducted a paid-in capital increase worth 200 billion won to narrowly avoid the risk of an event of default (EOD).