Lotte Chemical has led restructuring of South Korea's petrochemical sector, cutting production capacity at uncompetitive facilities after recording an operating loss of 943.6 billion won last year.
The government has set a target of reducing naphtha cracking center (NCC) capacity by 2.7-3.7 million tons. Capacity cuts discussed at Daesan and Yeosu total about 2.5 million tons, close to the minimum of the government target.
An integrated corporation for the Daesan No. 1 project has been launched, and restructuring discussions continue at Yeosu.
A free-rider debate has emerged: a company that cuts capacity first gives up sales and market share and bears restructuring costs, while competitors that keep plants running can share the benefits of improved supply-demand and pricing.
The dilemma is sharper for companies with integrated refining and petrochemical operations, such as GS Caltex, which cannot easily carve out NCC units because feedstock procurement, refining, petrochemicals and downstream businesses are linked.
