Concerns are rising over the impact of the Korea-China FTA in the domestic petrochemical industry, as the Korean market is wide open while Korean companies’ export to the Chinese market is blocked. Also, steel imports from China have skyrocketed this year to pose the same concerns on the steel industry.
According to the free trade deal, most chemical products except for ethylene are subject to tariff eliminations in 15 to 20 years. For example, the tariffs on naphtha and lubricating oil will be eliminated in 15 years and that of ABS, one of the main business items of LG Chem, is in 20 years. The tariff on terephthalate acid, which Korean textile companies are good at, is maintained as with that of paraxylene.
Chinese companies have already expanded their ethylene production facilities by using cheap coal and methanol, to the point of ranking second in the world in manufacturing capacity. At the same time, China’s propylene self-supply rate is going up at a rapid pace, which means the plan including the elimination of the tariff on ethylene in 10 years is not that beneficial for Korean chemical companies. “The petrochemical industry is characterized by product rankings determined by their prices,” an industry expert commented, adding, “Korea is likely to have a very hard time against China’s protective measures, while Chinese products will be further increasing their price competitiveness.”
In the meantime, steel imports from China to Korea were found to have reached 12.283 million tons between January and November this year. The Korea Iron & Steel Association explained in its recent data that the amount increased by 37.5 percent from a year ago.