South Korea’s petrochemical industry faces mounting financial challenges amid fierce competition from China and the Middle East, with seven major companies preparing to issue corporate bonds worth up to 2 trillion won ($1.37 billion) at the start of the year.
LG Chem, for instance, announced on Jan. 17 that it would issue bonds worth $411.5 million, while SK Incheon Petrochem confirmed plans on Jan. 14 for a $144 million issuance. Hanwha TotalEnergies Petrochemical, SK Geo Centric, HD Hyundai Chemical, Hansol Chemical, and others are also gearing up to secure funding through bond issuances in January and February.
The surge in bond issuances reflects mounting challenges in the petrochemical sector as S. Korean companies brace for harsher headwinds from China and the Middle East. China, once a vital export market for S. Korean petrochemical firms, has ramped up domestic production of ethylene—a key raw material in the industry. Between 2018 and 2023, China doubled its ethylene output from 26 million metric tons to 52 million metric tons and plans to add another 9 million metric tons this year. These moves have reduced its dependency on imports and allowed it to expand into major South Korean export markets like Vietnam and Thailand.
Meanwhile, Middle Eastern petrochemical firms are leveraging technological advancements, including crude oil-to-chemicals (COTC) integration, which bypasses the traditional process of refining crude oil into naphtha and then breaking it down to produce ethylene. This method slashes production costs to nearly one-third of those faced by S. Korean producers. Saudi Aramco, Saudi Arabia’s state-owned energy giant, is set to complete a large-scale COTC complex in Ulsan next year, heightening concerns among local firms.
In contrast, S. Korea’s petrochemical giants, including LG Chem, Lotte Chemical, Hanwha Solutions, and Kumho Petrochemical, are seeing their profits dwindle.
In 2022, their combined operating profit totaled approximately $2.98 billion, but this figure plummeted to 2.47 trillion won $1.6 billion in 2023 and just $163 million last year—falling to just one-sixteenth of the level two years ago. Given the scale of the petrochemical sector, which generates tens of trillions of won in revenue, the downturn is impacting conglomerates with major stakes in this industry.
The financial strain is leading to significant restructuring within major groups. In December, Hyosung Chemical decided to sell its specialty gas division—a previously stable revenue source—to its affiliate Hyosung TNC for $631 million. Hyosung Chemical has recorded 12 consecutive quarters of losses as of the third quarter of last year, with short-term liabilities reaching $1.9 billion. Analysts noted that the group likely used inter-affiliate transactions to stabilize Hyosung Chemical’s financial structure.
Similarly, Lotte Chemical faced liquidity concerns after having to repay about $1.37 billion in corporate bonds early at the end of last year. To secure funds, Lotte pledged its flagship Lotte World Tower as collateral and has been selling assets, including its top-ranked rental car business, Lotte Rental, as part of broader restructuring efforts.
LG Chem has managed to avoid overall losses due to its environmentally friendly materials, advanced components, and bio-related sectors, but its petrochemical division posted a deficit exceeding $68.5 million in both 2023 and last year. Reflecting concerns from top executives, including Chairman Koo Kwang-mo, LG replaced its petrochemical division head with a younger executive during the year-end reshuffle.
Hanwha Group and DL Group are also grappling with challenges at Yeochun NCC, their jointly operated naphtha cracking center in Yeosu. By the end of the third quarter last year, the facility’s net asset value had fallen to $512.1 million, a 33% decline from $761.3 million at the end of 2022. Both groups are reportedly exploring options such as capital increases to stabilize their finances.
