Alliance of Necessity
The Korean petrochemical industry came up with a voluntary restructuring plan. According to it, Hanwha Chemical, Lotte Chemical, and Hyosung integrate their terephthalic acid (TPA) production facilities with one another in order to cope with the ongoing supply glut. The plan is highly significant for the Korean manufacturing industry as a whole, and is expected to have a substantial impact on the other sectors such as shipbuilding and automobiles, with industrial restructuring emerging as a hot issue.
The facility integration, which is slated to be led by Hanwha Chemical, is the first big deal in 16 years in the industry. TPA is an intermediate material used in the production of synthetic fibers, and Korean companies producing TPA have exported about 80 percent of their output to China. Their export volume, however, plummeted from 3.6 million tons to 2.6 million tons between 2011 and last year, as Chinese firms have expanded their facilities at an aggressive pace since 2011. As a result, even Hanwha Chemical, the largest TPA supplier in Korea, failed to make profits last year, while some of the others, like SK Petrochemical, had to halt the operation of their facilities in the latter half of last year.
At present, Lotte Chemical and Hyosung each have a TPA production capacity of 650,000 tons and 420,000 tons, equivalent to the fourth and fifth places in the industry. Once the integration process is completed, Hanwha can increase its annual capacity to 3.07 million tons, about half of the national TPA production capacity.
Another important point of the restructuring plan is the joint use of materials and logistics networks. In this context, Hanwha set up a joint corporation with Sam Nam Petrochemical and Taekwang Industry to make a joint purchase of paraxylene. LG Chemical and Lotte Chemical are planning to purchase naphtha together, too.