Due to China’s Limited Reopening Effects
In the first half of this year, South Korea’s top four petrochemical companies – LG Chem, Lotte Chemical, Kumho Petrochemical, and Hanwha Solutions – have collectively lowered the average operational rates at their domestic petrochemical plants. This adjustment comes as the petrochemical industry has shown little sign of recovery in the first half of the year, prompting these companies to reduce operational rates. Their average operational rate has reached its lowest point in the past decade as they prepare for an uncertain second half of the year in light of China’s limited reopening effects.
According to industry sources on Aug. 23, the average operational rate of domestic petrochemical plants in South Korea stands at 79.8 percent as of the first half of this year. This figure represents the lowest level since 2014, falling below the rates of the previous year at 85.8 percent when demand for petrochemical products began to decline significantly and in 2020 at 86.4 percent when the COVID-19 pandemic started.
By company, LG Chem saw the most significant drop, decreasing from 90.1 percent in the previous year to 76 percent this year. Kumho Petrochemical, with average operational rates not disclosed and calculated based on product-specific data, followed closely with a decrease from 77.5 percent to 68 percent. Furthermore, Lotte Chemical, also with average operational rates not disclosed and calculated based on product-specific data, experienced a slight decline from 82.1 percent to 81.4 percent. In contrast, Hanwha Solutions was the only company to see a slight increase in its average operational rate, rising from 93.4 percent to 93.7 percent.
As such, the majority of chemical companies have shown a decline in their average plant operational rates due to unfavorable conditions in the petrochemical industry during the first half of this year and ongoing maintenance work at some facilities. An LG Chem spokesperson said, “The decrease in plant operational rates was influenced by maintenance work carried out at the Yeosu Naphtha Cracking Complex (NCC) during the first half of this year.”
A spokesperson from a major petrochemical company stated, “It is true that we reduced operational rates due to worsening market conditions,” adding, “We couldn’t completely shut down the plants so we reduced operational rates only to some extent.” In the petrochemical industry it is known that once operations are halted it takes a minimum of two weeks or more to safely restart production.
The challenge lies in the fact that the petrochemical market is unlikely to rebound in the second half of the year. Earlier this year, many experts predicted that the petrochemical industry would experience an upturn in the second half, citing factors such as China’s reopening and the recovery of various industries.
However, the effects of China’s reopening have been less than expected, leading to a growing atmosphere of pessimism in predicting a sluggish second half. An industry insider said, “There won’t be any significant changes in the second half, including expanding consumption, because the effects of China’s reopening were lower than expected.” In fact, according to China’s National Bureau of Statistics, China’s official Purchasing Managers’ Index (PMI) for the manufacturing sector in July was 49.3, marking the fourth consecutive month below 50. The PMI index is determined on a scale of 0 to 100, and typically, if it falls below 50, it is considered as “the manufacturing sector’s business activity has contracted compared to before,” while above 50 indicates “expansion.”