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The direction of the petrochemical industry’s response to China’s rising risk

Author Nam Jangkeun, Cho Yongwon Date 2015.05.06 Issue No 612

In recent days, the petrochemical industry in Korea has been faced with a crisis because of poor performances and worsening profitability resulting from cyclical factors coinciding with various structural factors. 

In terms of the crisis in the petrochemical industry, aggravated performances mainly resulted from the “China risk” created by over-dependence on China. 

ㅇ While China’s share of the total exports is very high, recording about 50%, exports and business performance have been significantly aggravated due to the direct impact of recent sluggish demands and increased self-sufficiency in China.

ㅇ Due to the delayed global economic growth and decline of crude oil prices have limits in improving profitability.
ㅇ The shale gas revolution and tightened environment regulations are mid- and long-term threats to the petrochemical industry in Korea.
ㅇ In Korea, naphtha is used in the petrochemical process as base material which is much more expensive than both shale-based ethane (used in North America) and coal (used in China).

ㅇ As the quantitative growth strategies reach the end of the Korean petrochemical industry, it is the time of a paradigm shift focusing on enhancing the quality of the products is required.

ㅇ A bold and swift restructuring is urgently needed, such as realizing economies of scale through M&As and enlargement individual firms and reducing the number of companies.
ㅇ With regard to widely used sectors, it is required to take dual strategies that increase price competitiveness by shifting to more overseas countries producing low priced materials and domestically reinforce specialties with high added values. 
ㅇ Countermeasures are needed to aggressively support using the opportunities coming from the Korea-China FTA, provide support to diversify exporting markets to emerging economies including Southeast Asia, and reduce risks in commercializing high value added products.