The petrochemical industry has been a core pillar of South Korea's economic growth. However, this pillar is now shaking. Specifically, the NCC (Naphtha Cracking Center) based companies, often called the "Rice of Industry," face a severe crisis.
Major players like Lotte Chemical and Yeochun NCC are at the center of this storm. This is not just a problem for one or two companies. It is a structural shift that requires a total reorganization of the entire industrial ecosystem.
1. Refining vs. Petrochemicals: Two Different Paths
To understand this crisis, you must first know the difference between oil refining and petrochemicals. These two sectors follow different paths in the energy market.
The Refining Industry: Companies like SK Energy and S-Oil refine crude oil. They produce final consumer goods such as gasoline, diesel, and heating oil. Their profit depends on the "refining margin."
The Petrochemical Industry: Companies like LG Chem and Lotte Chemical take Naphtha (produced during refining) and break it down. They create basic materials like ethylene and propylene. These are the building blocks for plastics, fibers, and synthetic rubber.
The NCC is the heart of this sector. It cracks naphtha to produce ethylene. Since the 1970s, Korea built massive industrial hubs in Ulsan, Yeosu, and Daesan. This pushed Korea to become the world’s 4th largest petrochemical powerhouse.
Reader's Perspective: You might think of "oil" as just fuel for cars. But almost everything you touch—your phone, your clothes, your water bottle—starts at an NCC plant.
2. The Giant Tsunami: Oversupply from China
The golden age of Korean petrochemicals lasted until the mid-2010s. Back then, Lotte Chemical saw record profits. Employees at Yeochun NCC were even called the "Salary Kings" due to their high pay. However, the world changed after 2020.
The biggest cause of this crisis is Chinese oversupply. China recently added 25 million tons of production capacity. This is double the size of South Korea's entire industry. Furthermore, Middle Eastern countries started using COTC (Crude Oil To Chemicals) technology. This allows them to make chemicals directly from oil at a very low cost.
Crashing Profits: Lotte Chemical and Yeochun NCC began recorded massive losses in 2022. Yeochun NCC alone lost over 820 billion KRW in three years.
Low Operating Rates: Companies have lowered their factory operation rates to below 70%. This is far below the typical break-even point.
Reader's Perspective: Imagine you own a bakery, but a giant factory opens next door and sells bread for half your price. That is exactly what China is doing to Korea right now.
3. Turning Crisis into Opportunity: The New K-Strategy
Korean companies are no longer just competing; they are fighting for survival. Temporary loans are just "buying time." The industry needs a fundamental change. Experts suggest bold restructuring and cutting down old facilities.
So, how can Korea turn this crisis into a new opportunity?
Shift to High-Value "Specialty" Products: Korea cannot win a price war against China on basic plastics. LG Chem and Lotte Chemical are now focusing on battery materials and advanced tech materials. High technology and unique quality are the keys to profit.
Green Business Models: Moving toward plastic recycling and bio-plastics is no longer a choice. It is a necessity. This aligns with global ESG trends and creates a new growth engine.
Reader's Perspective: Korea is moving away from making "cheap plastic for everyone" to "specialized materials for future tech." This shift might be painful now, but it is the only way to stay a global leader.
Final Thoughts: A Necessary Evolution
The "Rice of Industry" is changing its flavor. The NCC crisis is a wake-up call for the Korean economy. We must move beyond the old methods of the 1970s. By embracing Eco-friendly tech and Specialty chemicals, K-Petrochemicals can rise again.
This transition will be difficult for local economies and workers. However, a smarter, greener industry will provide a more stable future for the next generation.
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Thanks a lot