Steel, petrochemical industries oppose state’s new reform plan

Korean steelmakers and petrochemical businesses on Thursday expressed dissatisfaction with the government’s new industry structure improvement plan, claiming that it is unrealistic.

The Ministry of Trade, Industry and Energy on Wednesday briefly mentioned its ideas on the ways to improve the business structure of the steel and petrochemical industry upon the analysis reports from two foreign consulting firms. The reports were made upon the industries’ request earlier this year. The concrete plan will be unveiled on Friday.

Quoting the analysis reports, the ministry expressed the necessity to reduce the size of thick plate business to solve the oversupply problem and boost the competitiveness of the steel sector. For the petrochemical industry, it also suggested the necessity of cutting the production of four items --Terephthalic acid (TPA), polystyrene, synthetic rubber and PVC.

The steelmakers, however, expressed reluctance over the ideas of the upcoming plan.

“Considering the characteristics of the production method of the thick plate, the companies can independently control the supply. Shutting down or selling the plants just because of the oversupply can greatly damage the competitiveness,” said an anonymous source from one of the major steelmakers. “In the long run, reducing the thick plate sector can only provide opportunities to China.”

Currently, Korea is estimated to have the annual production capacity of about 12 million tons of the thick plate, with Posco running four plants, Hyundai Steel two plants and Dongkuk Steel one plant. The actual annual production amount is around 9 million tons.

The companies have already carried out rounds of restructuring plans in the past years to cut the production amount.

The petrochemical industry also shared similar concerns, although it said it respected the theoretical purpose of the reform plan.

“If TPA plants are reduced, the demand for its source, paraxylene, will go down, ultimately leading to a paraxylene oversupply. Cutting down the industry scale to eliminate oversupply concerns can only damage the ecosystem of the petrochemical industry,” said another anonymous source from a chemical company.

TPA has been pointed out as one of the major oversupplied items. The TPA export amount declined from 3.6 million tons in 2011 to 2.3 million tons last year, due mainly to the supply from China. As part of the moves to handle the market change, the Korean companies have already cut the annual production capacity from 5.6 million tons to 4 million tons.

By Lee Hyun-jeong  (rene@heraldcorp.com)