As the conflict between the U.S. and Iran continues, uncertainty in the petrochemical industry has reached new heights. Next week, the merger of Yeocheon NCC and Lotte Chemical's naphtha cracking facility in Yeosu is expected to be finalized. Following the reduction of ethylene and other basic petrochemical production at the Daesan Industrial Complex, attention is focused on whether this merger can provide a breakthrough for the struggling petrochemical sector.
According to industry sources on July 15, the government plans to hold a meeting regarding the Yeosu NCC merger around July 20 to decide on approval. It is anticipated that the meeting will finalize the operational integration plan for Yeocheon NCC, a subsidiary of Hanwha Solutions and DL Chemical, and Lotte Chemical's Yeosu NC plant.
If approved, the Korea Development Bank and other creditors will begin determining the scale of financial support for the four petrochemical companies in Yeosu, while the Fair Trade Commission will expedite the merger review process under the special petrochemical law.
Previously, Hanwha Solutions, DL Chemical, and Lotte Chemical submitted a plan to the government to close Yeocheon NCC's plants 2 and 3 and establish a merged entity with the remaining plant 1 at Lotte Chemical's Yeosu facility. An industry insider noted, "With the stabilization of the naphtha and ethylene supply chain and agreements on employee retention, discussions on the establishment of the merged entity have gained momentum. As planned, the annual ethylene production is expected to decrease by approximately 1.37 million tons from Yeocheon NCC's plants 2 and 3."
Domestic petrochemical companies producing basic petrochemicals are facing structural downturns exacerbated by oversupply from China and uncertainties in the Strait of Hormuz. The ethylene spread, a key profitability indicator, has made it difficult to avoid losses without government subsidies since the beginning of the year.
Yeocheon NCC, the largest in the country, has accumulated operating losses since 2022, reporting a deficit of 569.2 billion won and total borrowings of 1.5 trillion won as of the first quarter. Analysts suggest that without the 200 billion won capital increase and 300 billion won loan support from its parent companies, Hanwha Solutions and DL Chemical, it could have faced a fate similar to Homeplus and the Chungang Group.
Lotte Chemical, a key affiliate of the Lotte Group, is also grappling with a downgrade in its credit rating due to poor performance in the basic petrochemical sector. The company has begun implementing measures to secure liquidity, including the sale of its overseas subsidiary, Pakistan LCPL.
Industry observers predict that creditors will provide financial support for the four petrochemical companies in Yeosu amounting to around 2 trillion won, which is double the support for the Daesan Industrial Complex. The creditors plan to finalize their financial support strategy, including new funding, debt restructuring, and perpetual bond conversions, by August.
Lee Deok-hwan, an emeritus professor of chemistry at Sogang University, stated, "To normalize the petrochemical industry, companies must achieve meaningful results by transitioning to high-value specialty products with the support of government finance, administration, and policy. Given the renewed importance of refining and petrochemicals due to the Middle East conflict, the government also needs to minimize negative perceptions of the industry."
* This article has been translated by AI.
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