[Asia Exclusive] "Petrochemical Industry Supporting Korean Economy, United Effort to Achieve Carbon Neutrality"

Direct Approach Asia Exclusive - Moon Dong-jun, President of Korea Petrochemical Industry Association
Domestic Companies Increase Facility Investment
Export Unit Price Up 49% · Volume Up 4%
Diversifying Supply Sources of Basic Raw Materials and Auxiliary Materials such as Naphtha
Preventing Supply and Demand Disruptions

Moon Dong-jun, Chairman of the Korea Petrochemical Industry Association, is being interviewed at the Korea Petrochemical Industry Association in Jongno-gu, Seoul, on the 28th of last month. Photo by Kang Jin-hyung aymsdream@

Plastic, whose etymology means 'easily molded,' is considered one of the greatest engineering achievements of the 20th century. It laid the foundation for producing countless everyday items cheaply and easily from substances derived from petroleum. Just as 70% of the human body is composed of water, the claim that 70% of modern people's possessions are made of plastic cannot be dismissed as an exaggeration.

The petrochemical industry broadly deals with such plastics. It encompasses synthetic fibers, synthetic rubber, and various basic chemical products. Since awareness of environmental pollution has increased, plastics have been stigmatized with a negative image. This is largely because they are discarded as easily as they are made. As climate change has emerged as a global crisis, the petrochemical industry is under intense pressure to undergo a paradigm shift more than any other sector.

The petrochemical industry's competitiveness is primarily measured by how much ethylene?known as the 'rice of petrochemicals'?is produced from naphtha extracted from crude oil, as well as from gas and coal. Additionally, the efficiency and economy of the production process and the level of differentiated technology to produce high value-added products are also evaluated.

Although not a single drop of oil is produced, the petrochemical industry is a cornerstone supporting South Korea's export-driven economy. Last year, it surpassed $50 billion in annual exports for the first time, ranking second in export items after semiconductors. Petrochemical product exports increased by about 55% compared to the previous year, the second-highest growth after petroleum products (58%). While it played a proper role as an export powerhouse, there is no room for complacency. Issues such as carbon neutrality remain pressing, and with international affairs becoming increasingly unstable, supply chain issues like raw material procurement could arise at any time. We spoke with Moon Dong-jun, Chairman of the Korea Petrochemical Industry Association.

Moon Dong-jun, Chairman of the Korea Petrochemical Industry Association, is being interviewed at the Korea Petrochemical Industry Association in Jongno-gu, Seoul, on the 28th of last month. Photo by Kang Jin-hyung aymsdream@

-Last year, the petrochemical industry played an important role in South Korea achieving its highest-ever trade performance. The business environment must have been challenging; what factors contributed to this good performance?

△It was the result of domestic petrochemical companies increasing facility investments and actively exploring sales channels. Companies like LG Chem and GS Caltex started or expanded new facilities, increasing export volumes by about 3.9%, while export prices rose by 49%. The rise in oil prices was a major factor, but the prolonged COVID-19 pandemic significantly increased demand for packaging and quarantine supplies, and industries such as electronics, electrical appliances, and automobiles benefited from non-face-to-face demand. Unexpected events like heavy snow and cold waves in the U.S. caused local petrochemical complexes to halt operations for several months, which ultimately acted as a positive factor.

-Recently, society experienced turmoil due to China's export restrictions on urea solution, and just a few years ago, the industry faced a crisis from Japan's export controls. With the growing importance of economic security, how is the petrochemical sector addressing supply chain issues?

△Domestic petrochemical companies have production capacities double the demand, creating conditions to minimize supply disruptions. However, 53% of the basic raw material naphtha is imported. Some auxiliary materials like catalysts and additives are also sourced from overseas. While naphtha used to be 100% dependent on the Middle East, it has now diversified to include Russia and India. After the 2011 Great East Japan Earthquake and Japan's export restrictions in 2019, supply sources for auxiliary materials were also diversified. The government operates an early warning system for items with high import dependence and responds with tailored strategies such as stockpiling, import substitution, and domestic production for key economic security items.

To Catch Up with Leading Countries like the U.S.,
Develop High Value-Added Chemical Materials
Linked with Semiconductors and Future Cars

-The petrochemical industry is known as a typical cyclical sector. If the current period is a boom, what preparations are being made for a future downturn?

△Operating profit margins fell to 4% in the first half of 2020 due to the sharp drop in oil prices caused by COVID-19, but improved to around 15% last year. Despite the Omicron variant, petrochemical demand is expected to steadily increase this year. However, supply, especially from the U.S. and China, is expected to grow faster than demand, leading to a weaker market than last year. We are enhancing competitiveness through cost reduction and steadily expanding the market for high value-added products to maintain stable profits even during downturns. We are increasing world-class products through active technology development and facility investment, and expanding business by mergers and acquisitions (M&A) or joint ventures with overseas companies possessing high value-added technologies and products.

-To what extent do you anticipate oversupply or profitability deterioration?

△Domestic ethylene production capacity increased by 34% from 9.5 million tons in 2018 to 12.7 million tons as of February this year. With planned refinery facilities coming online in 2026, capacity will rise to 14.2 million tons. China and the U.S. have also increased capacity by 69% and 27%, respectively, over the past four years, so concerns about oversupply domestically and internationally are real. Profitability could worsen in the short term due to soaring oil prices. However, demand continues to grow steadily, and supply conditions are expected to improve from next year. The U.S. is regulating shale development, and China is reducing facility operations to achieve carbon neutrality, which should alleviate supply growth pressures to some extent.

Moon Dong-jun, Chairman of the Korea Petrochemical Industry Association, is being interviewed on the 28th of last month at the Korea Petrochemical Industry Association in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

-South Korea is criticized for having weaker technology compared to advanced countries and weaker raw material competitiveness compared to latecomers. What is your view?

△South Korea ranks fourth in the world in ethylene production volume and has world-class production technology. However, if the U.S. is rated 100 in terms of process design, catalyst manufacturing, and advanced product production technology, South Korea is still at about 80 to 90. Compared to latecomers like the Middle East, the structure is inevitably disadvantageous in raw material procurement. We must overcome this through production efficiency, quality, and technological differentiation.

-Caught between leading groups and latecomers, what support measures are needed?

△To catch up with leading countries, we need to be more proactive in developing high value-added and specialty chemical materials linked to key demand industries where we have strengths, such as semiconductors, future cars, and displays. In the past, the focus was on the materials, parts, and equipment (SoBuJang) industry due to trade disputes, but it is necessary to develop technology centered on core chemical materials or secure technology through overseas M&A. Since material characteristics require large companies to lead technology development, increasing the support ratio for large companies from the current maximum of 50% to 75% (the same level as small and medium-sized enterprises) and increasing tax credits when designating new growth or source technologies would create an environment for companies to be more proactive.

Carbon Neutrality Determines Corporate Survival
Starting Line Similar to the U.S. and Europe
Increase Incentives for Greenhouse Gas Reduction
Such as Recycling Waste Plastics to Create Markets

-Carbon neutrality drives must be more burdensome than in other industries. How are you preparing?

△We have a sense of crisis that carbon neutrality is no longer a choice but determines the survival of our companies. It is an uncharted territory requiring tremendous challenges, causing worry and fear. However, since our starting line is similar to competitors like the U.S. and Europe, and with our accumulated strength, if the industry unites, we can find new breakthroughs. We have no objection to the government's direction to raise greenhouse gas reduction targets. We are responding by substituting bio-naphtha raw materials, switching to naphtha cracking processes based on renewable energy, and increasing resource circulation such as recycling waste plastics.

-How does South Korea's carbon neutrality response compare internationally?

△The pace is burdensome. In the newly raised Nationally Determined Contribution (NDC), the petrochemical sector's target for 2030 is 37.4 million tons, a 20.2% reduction from 2018 emissions. Achieving this target with existing technology without innovation is very challenging. According to the International Energy Agency (IEA) report, global petrochemical sector greenhouse gas emissions are expected to decrease by about 7.7%, from 1.3 billion tons in 2020 to 1.2 billion tons in 2030. It is necessary to increase public investment by allocating large-scale national R&D budgets or designating carbon neutrality technologies as national strategic technologies. Furthermore, building an economical and stable renewable energy supply chain and increasing incentives for urban oil fields (chemical recycling of waste plastics) will help create markets.

Interview by Lee Cho-hee, Head of the Industry Department

Compiled by Oh Hyun-gil and Choi Dae-yeol, Reporters

This content was produced with the assistance of AI translation services.