Lotte Chemical/HD Hyundai consider consolidation of naptha cracking ops

South Korean petchem firms Lotte Chemical Corp and HD Hyundai Co. are in discussions to consolidate their naphtha cracking operations at the Daesan petrochemical complex due to intense competition from an oversupply from China.

The two companies are looking at merging their respective naphtha cracking centre (NCC) assets in Daesan, South Chungcheong Province.

The companies are currently working with a major accounting firm to assess the value of the assets and determine the fair value of a prospective joint venture, sources said.

The Lotte-HD Hyundai negotiations began earlier this year, following failed attempts by Lotte Chemical to explore similar consolidation efforts with other domestic producers such as LG Chem Ltd and DL Chemical Co.

Lotte opted to deepen its existing partnership with HD Hyundai Oilbank Co., a subsidiary of HD Hyundai Group, sources said.

The two groups have been running a 40:60 joint venture, HD Hyundai Chemical, since 2014. The JV operates an ethylene facility with a production capacity of 850,000 tonnes/year.

Separately, Lotte Chemical runs an NCC plant in Daesan that adds 1.1 million tonnes/year of ethylene, representing roughly 20% of its total 4.5 million tonnes in ethylene output.

Consolidating the NCC operations would allow the two companies to cut costs through shared management of facilities, reduced payroll and overhead, as well as increased bargaining power for feedstock procurement.

Daesan is one of South Korea’s most strategically located petrochemical hubs due to its proximity to China, the world’s top petrochemical consumer.

However, with Chinese plants producing generic products at significantly lower costs, Korean firms have been under increasing financial strain.

Under one proposal being considered, Lotte Chemical would transfer its Daesan NCC assets to the existing HD Hyundai Chemical joint venture, with HD Hyundai Oilbank injecting additional capital – either in cash or in kind – to balance ownership and integrate the facilities under a single entity.

Lotte Chemical is also in ongoing talks with LG Chem over potential facility integration and has discussed collaboration with SK Energy Co. and Korea Petrochemical Ind. Co. in Ulsan, North Gyeongsang Province.