South Korea's Petrochemical Industry Likely to be Downsized in 2009

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Researched by Industrial Info Resources (Sugar Land, Texas)--Following the recent announcement made by the Financial Supervisory Service (Seoul, South Korea), the country's financial watchdog, to downsize the construction and shipbuilding sector in early 2009, industry experts are anticipating the automobile, petrochemical and semiconductor sectors in the country to become the next victims of downsizing.

The petrochemical industry has come under scrutiny as a result of weakening demand and the subsequent slump in prices, and faces downsizing on excessive investments toward setting up new production facilities or capacity expansion projects. According to the Samsung Economic Research Institute (SERI), domestic demand for petrochemicals in Korea is likely to fall by 1.6% from 2008 to about 9.35 million tons in 2009. The SERI also indicated that the sector would see sluggish business activity in 2009 because of the slump in demand from downstream industries, including manufacturers of appliances and automobiles.

Asia's polymer markets are reeling under the influx of low-priced goods from South Korea, the U.S. and the Middle East. Firms from these countries have taken to offloading goods at low rates to several countries in order to avert a domestic crisis. The SERI predicted a marginal growth of 5.3% in South Korean exports of petrochemicals to 11.2 million tons in 2009 compared with the previous year after having recorded a 36.6% decline in 2008 from 2007.

China, which is South Korea's largest trade partner, is flooded with inexpensive petrochemical imports dumped by South Korean players like LG Chem Limited (SEO:051910) (Seoul), Samsung Total Petrochemicals Company Limited (Sosan, South Korea), and SK Energy Company Limited (SEO:096770) (Seoul). In September 2008, China imported 81,000 tons of polypropylene from South Korea, accounting for 32.5% of total polypropylene imports, while imports of 64,400 tons of polyethylene from South Korea accounted for 20.1% of the total polyethylene imports. The imported items were less expensive than domestically manufactured goods by about $102.58 per ton. China is likely to impose severe anti-dumping measures on extremely low-priced polymer imports in order to protect its domestic industry.

Automobile manufacturers have been reducing or suspending production in order to reduce inventory pile-up. Sale of new cars fell by 27.7% to 74,753 in November compared with the previous year. About 300 auto-parts manufacturers based in the Namdong Industrial Complex temporarily suspended operations, affecting 5,000 workers. Ssangyong Motor Company Limited (SEO:003620) (Kyeonggi-Do, South Korea), an automobile manufacturer primarily engaged in the production of recreation vehicles and sports utility vehicles, posted a loss of $21.3 million in the third quarter this fiscal year and received an ultimatum from its principal shareholder, Shanghai Automotive Industry Corporation (SHE:600104) (Shanghai, China), to either accept restructuring or go bankrupt. Hyundai Motor Company (SEO:005387) (Seoul), the largest car manufacturer in the country, suspended operations at one of its plants last week because of a slump in orders.

In an unprecedented trend, prices of semiconductor chips have fallen by 40% worldwide because of the prevalent financial turmoil. With excessive supply in the face of uncertain demand, South Korea's semiconductor market is likely to worsen in the second half of next year with parts suppliers and equipment manufacturers likely to be the first victims of downsizing.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.