China’s growing plastics dominance is squeezing out Asian rivals

CHINA’S rapidly expanding petrochemicals industry is making life increasingly difficult for producers in Asia’s next-biggest exporter of the building blocks for making plastics.

Asia’s largest economy used to be the major market for South Korean companies such as LG Chem and Lotte Chemical. But the exporters of the chemicals used to make everything from nylon to disposable bottles and car interiors are now being forced to downsize their operations after a frenzy of petchem-plant building in China over the last few years created a supply glut.

LG Chem, South Korea’s biggest petrochemicals maker, shut a styrene monomer unit in Yeosu last month due to prolonged oversupply, according to a spokesperson who asked not to be named due to company policy. Lotte Chemical is also looking at strategic options for its Malaysian subsidiary, it said in an exchange filing this month, after Korean media reported it was trying to sell it.

The predicament these companies find themselves in is due to a massive surge of investment in the Chinese petrochemicals industry that started to really take off in 2020. The trend is continuing unabated, with the country set to account for almost three-quarters of global capacity additions this year, according to the International Energy Agency (IEA).

“It has come to a point where Asian petrochemical makers outside of China can’t compete anymore,” said Chang Hyunkoo, an analyst at Heungkuk Securities in Seoul. It is “becoming a sunset industry” in South Korea, he said, adding that it was tough to find alternative export markets to replace China.

The country took 49 per cent of South Korean petrochemical exports in 2019, but that dropped to 36 per cent last year and is likely to keep falling, Chang said.

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The rapid buildout has been reshaping global patterns of oil consumption towards Asia and particularly China, according to the IEA, cementing the country’s dominance as the major importer of crude. It is also offsetting the environmental benefit resulting from the increasing uptake of electric vehicles, resulting in forecasts for continued growth in overall Chinese consumption that will push back the peak for oil demand.

China started up or expanded 25 ethylene crackers from 2019 through 2023, said Eshwar Yennigalla, senior analyst at S&P Global Commodity Insights. That compares with just three new crackers in South Korea over the same period, he said.

As well as being forced to shutter some operations, Korean companies – including LG Chem and Hanwha Solutions – are also turning to more future-friendly businesses including solar energy and battery production. Major Chinese producers such as Rongsheng Petrochemical and Hengli Petrochemical have been some of the beneficiaries.

Quite a few South Korean firms have been considering exiting the petrochemicals business or exploring partnerships with feedstock producers in the Middle East, according to Parsley Ong, head of Asian energy and chemicals research at JPMorgan Chase & Co. “There might be more restructuring and more consolidation coming in the industry” this year, she said. BLOOMBERG