The waves of trade war between the United States and China are hitting the South Korean petrochemical industry. With an escalation of trade tensions between the two countries, the price of ethylene fell below US$1,000 (1.14 million won) per ton for the first time in a year and three months and that of butadiene, the raw material for styrene-butadiene rubber (SBR), slid to the lowest level of the year as well.
According to the Korea Petrochemical Industry Association on Oct. 30, the price of ethylene, which is a key basic material of the chemical industry, decreased to US$991 (1.13 million won) a ton on Oct. 26. It is the first time that ethylene prices dropped below US$1,000 (1.14 million won) per ton after recording US$879 (1 million won) in July 2017. As the price of ethylene, which exceeded US$1,300 (1.48 million won) from the beginning of the year until August, plunged in October, the industry is unlikely to have a refining margin.
The ethylene spread, the difference between the price of ethylene and the price of a finished product made from it, dived to US$250 (284,875 won) a ton in the fourth week of October. The figure recorded US$658 (749,791 won) per ton in the first quarter, US$618 (704,211 won) in the second quarter and US$589 (671,166 won) in the third quarter. It stood at US$545 (621,028 won) until September but it plunged in October. The break-even point is between US$250 to US$300 (284,875 to 341,850 won) per ton.
The situation in butadiene is even worse. The price of butadiene was US$1,051 (1.20 million won) a ton as of Oct. 26. The figure went down by 38.57 percent from the yearly high of US$1,711 (1.95 million won). Butadiene prices rose from US$1,299 (1.48 million won) per ton in January to US$1,711 (1.95 million won) in June, becoming the cash cow of year in the domestic petrochemical industry. However, the situation changed completely this month.
Currently, the butadiene spread already shows reverse margins. The figure stood at US$1,033 (1.18 million won) per ton in the first week of September but it decreased to US$637 (725,862 won) in the first week of October and US$347 (395,407 won) as of the fourth week of October. Park Young-hoon, an analyst at Hanwha Investment & Securities Co., said, “A butadiene spread of US$347 (395,407 won) per ton means reverse margins.”
As exports of tires, which are made from butadiene, took a hit, the price of emulsion styrene-butadiene rubber (ESBR) also plummeted 17.6 percent to US$1,545 (1.76 million won) per ton early August.
Experts believe that the trade war between the U.S. and China has adversely affected the domestic petrochemical industry. Lee Ji-yeon, an analyst at Shinyoung Securities Co., said, “As the U.S. and China have announced their plans to impose tariffs on raw materials for chemical products each another, international traders have greatly reduced orders designed to secure stocks.”
Some even say that there is also an oversupply as new large-scale chemical facilities have started operation in the U.S. Lee said, “U.S.-based oil firm Exxon Mobil and Dupont have begun producing 1.5 million tons of ethylene at their ethane cracking centers (ECCs) in the fourth quarter last year, while Chevron Phillips Chemical have started its facility with a production capacity of 1.5 million tons in January this year.”
Consequently, domestic petrochemical companies are expected to have a dimmer outlook on performance in the second half of the year. In addition, concerns over an excess supply of ethylene can grow further if the U.S. and China cannot find the key to the trade conflict. To be sure, there is still time but the ethylene production of the domestic oil refining and petrochemical industry will dramatically increase to 15.59 million tons in 2023.
Meanwhile, LG Chem Ltd. is the nation’s largest ethylene producer with 2.2 million tons a year as of June, followed by Lotte Chemical Corp. with 2.1 million tons, Yeochun NCC Co. with 1.95 million tons, Hanwha Total Petrochemicals Co. with 1.1 million tons, SK Global Chemical Co. with 860,000 tons and Korea Petrochemical Ind Co. with 800,000 tons. For butadiene, Lotte Chemical ranks first with an annual production of 330,000 tons, followed by LG Chem with 295,000 tons, Yeochun NCC with 240,000 tons, Kumho Petrochemical with 237,000 tons, SK Global Chemical with 130,000 tons and Hanwha Total Petrochemicals with 125,000 tons.