Hanwha and DL Agree to Higher Feedstock Prices... Yeocheon NCC Plant 3 Closure All but Confirmed

Yeocheon NCC Holds Briefing for Hanwha and DL Last Week
Higher Product Prices, but Shared Commitment to Reviving the Industry
Key Basis for Decision on Downsizing Yeocheon NCC Plant 3

Yeocheon NCC is set to finalize the renewal of its ethylene supply contracts with its major shareholders, Hanwha Solutions and DL Chemical, within this week. While there had been disagreements over the extent of price increases, both sides have decided to proactively accept higher feedstock supply prices in order to help normalize the petrochemical industry. Analysts note that the business restructuring process, which includes the closure of Yeocheon NCC's Plant 3 (with an annual ethylene capacity of 470,000 tons) as requested by the government, is now in its final stages.

A panoramic view of Yeocheon NCC Plant 1 located in Yeosu, Jeonnam. Yeocheon NCC

According to the petrochemical industry on December 10, Yeocheon NCC held a briefing last week for representatives from Hanwha Solutions and DL Chemical to discuss the renewal of supply contracts for key feedstocks such as ethylene. A Yeocheon NCC official stated, "The proposed supply price is higher than the previous contract," adding, "While the price is not entirely satisfactory for either company, there is a consensus that the petrochemical industry must be revived, so discussions have been moving in a positive direction."

Long-term contracts with higher feedstock prices are negative for the performance of Hanwha Solutions and DL Chemical. The difference between product and feedstock prices directly affects corporate earnings, so unless product prices rise, profits will inevitably decrease by the amount of the feedstock price increase.

Despite the risk of losing price competitiveness, the consensus to raise feedstock supply prices stems from a sense of urgency to revive the struggling industry. A Hanwha Solutions representative commented, "This is not a time to focus on short-term profits," adding, "Given that business restructuring is also at stake, we are discussing ways to cooperate as much as possible with the government's direction." A DL Chemical representative said, "We agree that a price increase is inevitable if Yeocheon NCC is to become self-sustaining," and added, "We will overcome the increased cost burden by strengthening our capabilities in developing high value-added products."

Yeocheon NCC has supplied 1.4 million tons of ethylene annually to Hanwha Solutions and 735,000 tons to DL Chemical. However, disruptions in supply have continued since last year due to disagreements during price negotiations.

With this agreement, some analysts believe that the closure of Yeocheon NCC's Plant 3 is now virtually certain. The government and Korea Development Bank have set three key conditions for Yeocheon NCC to submit its business restructuring plan: a reduction plan for Plant 3, a debt-to-equity swap worth 300 billion won, and the renewal of feedstock supply contracts with Hanwha and DL.

Among these, the reduction plan and the debt-to-equity swap have already been completed. In August, Yeocheon NCC halted operations at Plant 3 and reassigned 160 employees to daytime shifts for maintenance. The business restructuring plan that Yeocheon NCC intends to submit to the government this month will include measures for workforce reassignment and voluntary retirement. To improve its financial structure, Yeocheon NCC has decided to conduct a paid-in capital increase, with Hanwha Solutions and DL Chemical each agreeing to convert 150 billion won into equity. The feedstock supply contract is effectively the final step before submitting the restructuring plan.

However, the supply volume is expected to decrease compared to before. With Plant 3 offline, Yeocheon NCC's annual ethylene production capacity is about 1.7 million tons. Currently, the operating rates of Plants 1 and 2 remain in the low 80% range. Due to its low credit rating, Yeocheon NCC faces restrictions from Korea Development Bank and is also struggling to secure funds for feedstock purchases.

Industry insiders expect that the signing of this contract will resolve the supply instability Yeocheon NCC has experienced for over a year. Once supply stability is secured, it is expected that Yeocheon NCC will be able to recover its credit rating and secure funds for feedstock purchases and working capital, thereby accelerating the business restructuring process. A Yeocheon NCC official predicted, "If this supply contract is signed, we will be able to operate Plants 1 and 2 at nearly 100% capacity."

The Ministry of Trade, Industry and Energy is also closely monitoring the negotiations between these companies. A ministry official emphasized, "Since the deadline for submitting the petrochemical restructuring plan is the end of December, it is essential that negotiations are concluded swiftly."

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