Yeochun NCC to Close 470,000 Tons of Ethylene Capacity... Yeosu Complex Restructuring in Sight

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Yeochun NCC has decided to shut down its third plant (with an annual ethylene production capacity of 470,000 tons), which is currently offline. The company reached this decision as its raw material supply contracts with its shareholder companies, Hanwha Solutions and DL Chemical, are set to be finalized this week, leading to a reduction in ethylene production capacity. As the deadline for business restructuring approaches at the end of this year, this marks the first case of capacity reduction in the Yeosu petrochemical complex, where restructuring progress had been slow. Once the contract period and scale are finalized, Yeochun NCC will submit a business restructuring plan, including the closure of the third plant, to the government.

According to the government and related industry sources on December 1, the Ministry of Trade, Industry and Energy and the creditor group have requested that Yeochun NCC, Hanwha Solutions, and DL Chemical finalize their raw material supply contracts within this week. A senior government official stated, "The direction of the restructuring will be determined by how negotiations with the shareholder companies on raw material supply are concluded," adding, "We are closely monitoring the situation."

Yeochun NCC has been unable to finalize a renewal of its 19-year long-term supply contracts with Hanwha and DL, which expired last year, for nearly a year. Yeochun NCC supplies Hanwha Solutions and DL Chemical with 1.4 million tons and 735,000 tons of ethylene per year, respectively. It also supplies 610,000 tons of propylene annually to PolyMirae, a nearby polypropylene producer, and 120,000 tons of isobutene per year to DL Chemical. The main stumbling block has been disagreements over the pricing of raw materials supplied to Hanwha and DL.

However, as the government and creditor group have made the renewal of the raw material supply contract a key condition for determining whether to approve the reduction of the third plant, the nature of the negotiations between these companies has changed. The government and Korea Development Bank have conveyed that, for Yeochun NCC to submit its business restructuring plan, it must include: ▲ countermeasures for the third plant reduction, ▲ a 300 billion won debt-to-equity swap, and ▲ details of the renewed raw material supply contracts with Hanwha and DL. Among these, the countermeasures and debt-to-equity swap have been completed. In August, Yeochun NCC halted operations at the third plant and reassigned 160 employees to day shifts for maintenance. The restructuring plan, which Yeochun NCC intends to submit to the government within this month, will include measures for workforce reallocation and voluntary retirement. Regarding the debt-to-equity swap, DL Chemical has already completed the conversion of 150 billion won in loans, and Hanwha Solutions is also in the process of doing so.

Ultimately, the raw material supply contract has become the final card for submitting the business restructuring plan. Since Yeochun NCC’s total supply capacity has changed with the shutdown of the third plant, the basic quantity stipulated in the previous contracts must be recalculated. With both price and quantity now subject to adjustment, negotiations are ongoing over the specific purchase volumes. Given the deteriorating market conditions, it is expected that maintaining long-term fixed volumes, as in the past, will be difficult in practice. Industry sources predict that "the contract period will be shorter than before and the supply volume will reflect the reduced facility capacity." A Yeochun NCC representative stated, "The self-rescue plan can only be completed once the raw material contract is finalized. Most of the practical measures the company can take have already been completed."

Within Yeochun NCC, there is some discontent that the reduction should not end up being their problem alone. There are concerns that, in a situation where the entire Yeosu industrial complex is under pressure to adjust for oversupply, if only one company implements reductions, it will have to shoulder the losses alone. The government maintains a firm stance that "free-riding companies will be dealt with strictly," and Minister of Trade, Industry and Energy Kim Jeonggwan recently told Yeosu petrochemical companies that "companies that miss the deadline for submitting restructuring plans will be excluded from government support."

If Yeochun NCC reduces its annual ethylene output by 470,000 tons, combined with the 1.1 million ton reduction at the Daesan petrochemical complex, a total of 1.57 million tons will be eliminated. This is about 1 million tons short of the government’s minimum reduction target of 2.7 million tons.

The ethylene production capacity of the Yeosu region’s NCC facilities totals 6.42 million tons, the largest in the country, with Lotte Chemical at 1.23 million tons, LG Chem at 2.08 million tons, Yeochun NCC at 2.29 million tons, and GS Caltex at 900,000 tons. A local official commented, "For the government’s restructuring to work properly, other companies in the industrial complex must also share some of the responsibility."

The industry expects that further adjustments within the Yeosu industrial complex are likely. In particular, LG Chem’s Yeosu Plant 1 (1.1 million tons) is being cited as the next candidate due to aging facilities, cost burdens, and the potential for a joint venture with a refinery company.

Recently, LG Chem and GS Caltex reportedly selected an external consulting firm to review scenarios for integrating their Yeosu NCC plants into a joint venture (JV). Since this would be a structural transformation based on vertical integration between a refinery (GS Caltex) and a chemical company (LG Chem), it is considered more suitable for government-led restructuring. Both sides are reportedly aiming to improve facility operation efficiency and reduce costs, while also adjusting existing excess capacity and enhancing market competitiveness.

However, challenges remain, including the valuation of NCC facilities, allocation of costs arising from consolidation, the feasibility of business synergies, and obtaining consent from foreign investors who are joint shareholders of GS Caltex.

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