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South Korean companies like LG Chem and Lotte Chemical are under pressure as new plants in China worsen the global glut and squeeze margins. The country’s petrochemical sector, which saw exports drop over 15% in 2023, faces more challenges despite a slight rebound, Bloomberg reported.
Paul Joo, head of olefins research at S&P Global Commodity Insights, warned that ‘China is rapidly expanding its production of polyethylene and polypropylene, reducing its reliance on Korean imports and even exporting to other countries in Asia and South America. Korea risks being left behind unless decisive restructuring occurs.’
Global capacity for key plastics chemicals like ethylene and propylene is set to surge this year, mostly in China, outpacing demand, BloombergNEF analyst Philip Geurts said in a January report.
Some companies are beginning to adapt. LG Chem shut its Daesan and Yeosu plants, exiting the market for styrene monomers, a widely used chemical that is essential in the production of plastics and rubber.
These steps are unlikely to offset Lotte’s record KRW 900 billion (USD 617 million) loss last year. Other firms like LG Chem also saw steep profit declines. As a result, chemicals have been the worst-performing sector on the Korean stock exchange over the past year, falling about 25%.
Both firms are shifting focus to higher-value materials for the renewable energy industry in an effort to rebound from China’s supply-driven pressure – though China is also rapidly expanding in those same advanced segments.
Chinese producers hold a key advantage through access to cheaper feedstocks such as naphtha and methanol, including supplies from countries under sanctions. Unlike China, South Korea – as a US ally – avoids trade with nations like Russia and Iran. According to Kpler, South Korea has received no petroleum products from Russia since April 2024. In addition, China imports Iranian liquefied petroleum gas at below-market prices, further reducing its costs. As Chua Sock Peng of the London Stock Exchange Group notes, China also finds it easier to upgrade its production due to looser environmental regulations.
China is pushing refiners to shift from fuel to petrochemicals as EVs reshape energy demand. ‘We will advance petrochemical industries toward fine chemical industries’, the National Development and Reform Commission said in its annual report.
