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Government Working on Diverse R&D Assistance Measures
Following is an interview with Kim Jae-hong, the director of the Office of Industries at the Ministry of Knowledge Economy in regards to the domestic petrochemical industry’s current trends and tasks.
Government Working on Diverse R&D Assistance Measures
  • By matthew
  • December 13, 2011, 19:30
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At the interview, he emphasized the importance of a transition from universal product-centered quantitative growth to qualitative growth focusing on core businesses and high value-added products.

Q: What does the government have in store for the long-lasting competitiveness of the sector?

A: First of all, the government will further advance the three petrochemical industrial complexes so that they can become world-class clusters. By inst-alling pipe highways, with which the entire complex can be run like a single plant, we will make better use of energy resources and production facilities, which will boost the manufacturing efficiency of the three across the board.

We are planning to select key strategic businesses in order to nurture them into new growth drivers, while securing more source technologies. Furthermore, corporate backup measures will be introduced to better encourage the industry to work on high value-added products, open up overseas markets and make forays into niche markets. Last but not least, more domestic demand will be created by strengthening the soundness of the industrial ecosystem and sharing growth with relevant companies, such as plastic processors.

Q: What is your assessment of petrochemical firms in the Middle East, whose market share is on the rise these days, are they a threat?

A: When it comes to product diversity and overall quality, I think we still a sufficient competitive edge.

Middle East players outperform us in terms of facility size and cost competitiveness. They use low-cost materials and have less fixed expenses than we do. However, their Korean counterparts are supplying products of various grades to keep them at bay, meeting the needs of diverse clients worldwide.

Unlike those in the Middle East, which are producing only universal products, i.e., polyethylene and polypropylene, Korean firms are making a range of high value-added products employing propylene, butadiene, BTX (Benzene, Toluene and Xylene), etc. The advantage is especially conspicuous in that they can produce and supply high-strength, durable and thermal resistant products to electrical and electronics companies and automakers. Such exclusive products account for 40% to 60% of Korean companies’ lineup. The figure is just 20% and 25% for Chinese and Middle Eastern companies, respectively.

Q: Nowadays, we see oil refiners rushing to integrate themselves with petrochemical businesses in the framework of long-term strategies. What is your opinion about this trend?

In the past, oil refiners’ portfolios were rather limited to petroleum products and petrochemical ones were simply a sort of byproduct for them. However, this is not so any longer. Global demand for petrochemical products is rising rapidly, especially in Asian markets, and this is significantly contributing to the profits of petrochemical firms. Petroleum producers are changing their way of thinking, making additional investments to cope with increasing demand and establishing joint ventures with foreign enterprises.

Q: There are some predictions that the KORUS FTA, once it takes effect, will be beneficial to the sector. Is this true?

A: Industrial cooperation with the United States will give some momentum to the research and development of high value-added products. Furthermore, increasing exports in automobile and textile industries will entail higher domestic demand for petrochemical goods, contributing to enhancing the sector’s exports and export market diversification.

What is somewhat of a concern is that increased imports of raw materials and high value-added products caused by the tariff cut will deter Korean firms from making more effort in research and development. This could result in a higher level of dependence on the US market. We will prepare a multi-faceted assistance policy to handle this though.