LG Chem, Korea’s largest petrochemical company, will shut down its styrene monomer (SM) plant at the end of March. SM is widely used in the manufacture of various petrochemical products. The company is also reportedly considering abandoning production of ethylene oxide (EO) and ethylene glycol (EG), two other general-purpose products. Industry watchers are expecting a restructuring of the Korean petrochemical industry to begin in earnest amid a global supply glut fueled by a Chinese-led capacity rush.
According to industry sources on March 12, LG Chem is planning to build a production line at its currently operating Yeosu SM plant (150,000 tons per year) later this month. The decision follows the shutdown of one line in 2023. LG Chem demolished its Daesan SM plant (500,000 tons per year) in South Chungcheong Province in June 2023, which means it will completely stop SM production. SM, an essential raw material used to make acrylonitrile-butadiene-styrene (ABS) resin and synthetic rubber (SBR), is considered representative products whose prices have plummeted due to the expansion of facilities by Chinese companies.
LG Chem is also reportedly considering shutting down ethylene oxide (EO) and ethylene glycol (EG) production at its Daesan plant. EO goes into cement and detergents while EG is used to make polyester fibers, film, and antifreeze. Their prices have also fallen in recent years, making it impossible to meet break-even points. For the same reason, Lotte Chemical sold off a stake in its EO production plant in China to a Chinese company last year.
Other petrochemical companies are also hunkering down. Hyosung TNC considered entering the business of butanediol (BDO), a raw material for spandex, but decided to give up the plan. This is because Chinese companies have ramped up production, creating an oversupplied market.
A price war waged by Chinese companies has led to a lower plant utilization rate for Korean petrochemical companies. In 2020, the utilization rate of ethylene and synthetic resin plants was over 90 percent, but it dropped to the early 70 percent range in 2023. A 70 percent utilization rate is considered the break-even point for the petrochemical industry.
This explains why LG Chem has been reorganizing its business portfolio since 2023. The company has decided to focus on high-value-added products that still have a technology gap with China as general-purpose products suffering from oversupply are not enough to make the company stay above the 70 percent utilization rate.
Lotte Chemicals and others are focusing on specialty businesses such as ABS and PC which are used in automobiles, home appliances, and smartphones.