South Korean Petrochemical Producers Invest USD12.8 Billion to Improve Global Competitiveness .

The Korea Petrochemicals Industry Association (KPIA) (Seoul, South Korea) recently announced that petrochemical manufacturers in the country would make a combined investment of about $12.8 billion on facilities through 2013.

The investment is expected to help domestic petrochemical manufacturers improve the global competitiveness of their products and reduce environmental impact.
The petrochemical industry in South Korea, which is among the largest consumers of traditional fossil fuels, is one of the largest emitters of greenhouse gases.

This year, petrochemical producers are likely to spend about $4.15 billion on new facilities in the country. There are plans to increase trade surplus targets to $22.6 billion from $17.39 billion. In 2010, the petrochemical sector is targeting $5.2 billion in investments.

Some of the new projects include an $883 million investment by LG Chem Limited (SEO:051910) (Seoul) on a lithium ion battery manufacturing facility, a $2.38 billion ethylene production facility expansion by Yeochun NCC Company (Seoul), and a $7.94 million solar module- and battery-manufacturing unit to be developed by Hanwha Chemical Corporation (SEO:009835) (Seoul).

As part of its strategy to expand overseas business by 2015, SK Energy Company Limited (SEO:096770) (Seoul) is expected to move the global headquarters of its petrochemicals business to Shanghai, China. During the third quarter of 2009, the group’s petrochemical business accounted for 30% of total revenues.

China’s chemical and petrochemical demand is expected to surge due to projected economic growth. Several South Korean petrochemical companies are exploring possibilities to set up facilities in China and take advantage of the surging demand. China, which shares its borders with South Korea, has become the top destination for South Korean chemical and petrochemical project investments.

LG Chem Limited and China National Offshore Oil Corporation (CNOOC) (Beijing, China) signed an agreement in July last year to set up a $370 million petrochemical plant in China. SK Energy Company Limited is also building an ethylene facility in the Central Hubei province, in association with China Petroleum and Chemical Corporation (SHA:600028) (Beijing).

According to “South Korea Petrochemicals Report 2010,” published by Business Monitor International (BMI) (London, England), the country’s petrochemical sector is mature and integrated, despite having limited oil and gas reserves. In 2009, the combined olefins manufacturing capacity included 5.87 million tons per year of propylene, 1.25 million tons per year of butadiene, and 7.48 million tons per year of ethylene. Intermediate production included 6.63 million tons per year of Terephthalic acid, 330,000 tons per year of ethylene benzene, 3.28 million tons per year of styrene monomer, 1.3 million tons per year of ethylene glycol and ethylene oxide, and 4.06 million tons per year of benzene.

However, the report cautions that South Korea’s reliance on China for petrochemical exports can be risky. Despite a slow petrochemical demand growth, China is expected to perform large-scale expansion projects. This may lead to China witnessing surplus in some segments. South Korean petrochemical producers may be forced to undermine prices, which could hit profit margins.