Seven petrochemical companies hit by price-fixing probe
The industry is already struggling from business restructuring prompted by a glut of Chinese supply and uncertainty over raw material procurement due to the closure of the Strait of Hormuz.
The Yeosu Industrial Complex in Jeonnam-Gwangju Special Metropolitan CityYONHAP
Korea’s petrochemical industry is facing a triple burden: sweeping business restructuring prompted by a glut of Chinese supply; uncertainty over raw material procurement following the closure of the Strait of Hormuz; and now a prosecution investigation.
The fair trade investigation division of the Seoul Central District Prosecutors’ Officeraided the offices of seven companies, including Hanwha Solutions, LG Chem and Aekyung Chemical, and the individuals connected to those companies last Wednesday, according to petrochemical industry sources on Sunday.
The companies are suspected of colluding for years to fix the prices of eight petrochemical products, including polyvinyl chloride (PVC), plasticizers and caustic soda.
The Fair Trade Commission had already conducted on-site inspections of the companies in May. The most recent investigation, however, adds a layer of uncertainty for domestic petrochemical companies already pursuing a sweeping, government-backed restructuring as they struggle to compete with inexpensive Chinese products.
“Whether price-fixing would have been possible is questionable when the petrochemical industry has been mired in a prolonged downturn, and the market is overflowing with substitute products from China,” an industry source said. “The investigation, along with the restructuring, will inevitably weigh on the industry. Everyone knows that [it’s] already struggling, but some are even saying that it feels like people are praying for it to die more quickly.”
Some petrochemical companies, such as Hanwha Solutions and Lotte Chemical, remained profitable in the second quarter. The industry, however, widely views those results as an illusion created by a lag effect.
The companies had purchased naphtha and other raw materials at lower prices before the outbreak of war between the United States, Israel and Iran. Afterward, international petrochemical product prices surged, and companies’ margins temporarily widened.
Hanwha Solutions’ operating profit is forecast to fall sharply from 306.5 billion won ($216.6 million) in the second quarter to 191.5 billion won in the third, according to financial data provider FnGuide. LG Chem’s operating profit is also expected to decline from 599.6 billion won to 223.3 billion won over the same period, and Lotte Chemical is projected to swing to an operating loss in the third quarter and remain in the red through the fourth.
Naphtha processing facilities at Yeochun NCC in the Yeosu Industrial Complex in Jeonnam-Gwangju Special Metropolitan CityYONHAP
“The spread between the price of naphtha […] and the selling price of ethylene needs to be around $250 per metric ton for companies to turn a profit,” an industry source said. “[That figure] widened to as much as $500 immediately after the war but has narrowed sharply to the $100 range.”
Profitability is therefore likely to deteriorate again in the second half of the year as more raw materials purchased at elevated postwar prices enter production. Naphtha prices have already risen about 70 percent, from $62.74 per barrel in January to $106.86 in June.
Uncertainty surrounding the Strait of Hormuz has persisted for months. As procuring naphtha from the Middle East became more difficult, Korean companies increased their reliance on raw materials from the United States, India and other regions. That shift, however, has lengthened shipping times and increased transportation costs, and companies now have a limited ability to pass higher raw material costs directly on to customers since petrochemical product prices are set in line with international market rates.
Additionally, the industry’s fundamental problem — oversupply from China — remains unresolved. China, once the largest customer for Korean petrochemical companies, raised its self-sufficiency rate through massive capacity expansion, narrowing export opportunities for Korean products since 2022.
Major companies are consequently pursuing government-led restructuring projects, including the consolidation of naphtha cracking centers.
“China’s large-scale capacity expansion is expected to continue through 2027,” an industry source said. “Until then, we have no choice but to endure the oversupply.”
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
