South Korea has initiated a far-reaching restructuring program in the petrochemicals sector, inviting top domestic producers to cut capacity in the midst of persistent global oversupply and declining profitability, according to WPB.
The international petrochemical market has been put under unimaginable pressure, with Asian manufacturers—majorly from China and South Korea—increasingly struggling to maintain margins as product prices drop. While the woes of the European market are mainly on account of increasing energy prices, the outcome in the two markets is the same: a faltering industry struggling to maintain operations under mounting financial strains.
Among the key determinants of increasing South Korea's woes has been China's runaway rise in petrochemical output, churning out products at significantly lower prices and increasing competitive pressure around the region.
On this, the government of South Korea announced that the nation's top ten petrochemical firms have all signed on to a restructuring framework as a group. The deal centers on reducing naphtha-cracking capacity by as much as a quarter. Naphtha is petrochemical material that is supplied to steam crackers and utilized for making ethylene, propylene, and other monomers that are the basis of plastics and synthetic products.
Industry news says the firms will reduce their total annual cracking capacity by some 2.7 to 3.7 million metric tons. Considering the country's current 14.7 million tons capacity, such cuts represent a drastic shift, bringing the industry in line with leaner and potentially greener operations.
Executives at the ten companies have signed the restructuring agreement, a first in national industrial policy. The companies must now come up with comprehensive plans to cut capacity by the year's end, including steps to align production with market realities.
Finance Minister Koo Yoon-cheol again emphasized that the path forward is to ease chronic oversupply and enhance competitiveness. He exhorted the industry to move more quickly to submit their restructuring plans, underlining the urgency of collective action towards stabilizing the market.
By WPB
Petrochemical, Petroleum, Market
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