‘China Insider’ Strategy
SK Innovation Co., South Korea's top oil refiner, announced on October 17 that China-Korea Petrochemical, the joint venture formed by its affiliate SK Global Chemical Co. and China Petroleum & Chemical Corp. (Sinopec), the largest petrochemical company in China, have decided to invest 740 billion won (US$653.42 million) to boost its production capacity by 40 percent.
However, the latest investment will be made with profits created by China-Korea Petrochemical, not the direct investment from SK Global Chemical and Sinopec.
With the expansion, the Sinopec-SK Wuhan Petrochemical joint venture is expected to raise its production capacity to 3 million tons a year, which includes 1.1 million tons of ethylene, 900,000 tons of polyethylene and 700,000 tons of polypropylene, turning into a chemical giant in China. The expansion is to be completed by 2020 and the company will begin commercial production as soon as it is completed.
An official from SK Innovation said, “The self-sufficiency ratio of ethylene and its derivatives in China will reach 60 percent by 2020 and China-Korea Petrochemical’s decision to make the investment is part of its strategy to secure the pre-emptive marketing base.”
For the expansion, the joint venture will revamp its existing plant by replacing various components or installing new equipment to jack up the output capacity, instead of building a new plant.
China-Korea Petrochemical, which is considered the most successful case of global partnering projects by SK Innovation, was established in Wuhan, the capital of Hubei province, in October 2013 with SK Global Chemical and Sinopec investing 3.3 trillion won (US$2.91 billion) with the ratio of 35 percent to 65 percent.
The joint venture is the largest joint petrochemical project since South Korea established diplomatic ties with China. It has been showing a gain since the first year of operation. In fact, China-Korea Petrochemical recorded a profit of 147.7 billion won (US$130.42 million) in 2014, the first year of operation, 465 billion won (US$410.6 million) in 2015 and 369.6 billion won (US$326.36 million) in 2016. It is expected to post some 600 billion won (US$529.8 million) in surplus this year.
An official from SK Innovation said, “The so-called “China Insider” strategy that have been sought by SK Group for a long time after Chairman Chey Tae-won personally proposed in 2006 is beginning to pick up with the investment in additional expansion. The expansion of partnering in China with global leading firm Sinopec will be a good stepping stone for SK Innovation to grow into global leading energy and chemical giant.”