SEOUL, KOREA - As Chinese chemical companies keep increasing their capacities in coal-based basic chemicals such as ethylene and propylene, Korean petrochemical producers are nervous about the prospect. Under the prolonged global industry downturn, coupled with the shale gas revolution and the declining China-originated demand, Korea's chemical industry is in danger of being wiped out by the gale force.

 

China's coal chemical industry has been keenly watched by the world's chemical industry observers. This is more so as the Chinese government began ambitiously nurturing the coal chemical industry in its western inland region. The coal-based chemical industry that produces ethylene, propylene, and other basic chemicals is about 20-30 percent lower in cost than petroleum-based rivals. Some even suggest the large-scale capacity expansion undertaken by Chinese companies may change the whole industry landscape.

 

According to U.S. market research firm IHS Inc., the new or expansion projects for coal-based ethylene and propylene plants initiated in China between 2013 and 2018 are estimated at US$55.9 billion won in 29 cases. This is a 7.4-fold increase from the previous five years. Once all the new or expansion projects are completed, China's total coal chemical industry capacity would have increased to 17.1 million tons, 6.2 times more than the current capacity of 2.76 million tons.

 

According to AsiaChem Consulting, as much as 30 percent of ethylene and propylene output in China will come from coal by 2018. Hwang Yoo-shik, Meritz Securities analyst, said, "Most of the new coal chemical capacities in China are concentrated in Xinjiang and Inner Mongolia with abundant coal deposits. Once the output in these plants begins to flood the market, Korean petrochemical producers will be hit hard as they rely on Chinese customers for 45 percent of their chemical output."

 

Article provided by The Korea Economic Daily