Petrochemical plants are in operation at the Yeosu National Industrial Complex in South Jeolla Province in this undated photo. Newsis
By Park Jae-hyuk
Cautious optimism is growing that Korean petrochemical firms could enjoy an earnings recovery as a result of China's plan to stimulate domestic demand, as well as hope for a truce between Russia and Ukraine.
During the seven-day National People's Congress from March 5 to 11, the Chinese government announced its planned allocation of 300 billion yuan ($41 billion) to encourage consumers to replace their old products with new ones. The decision came as part of the country's efforts to maintain economic growth at 5 percent.
Given that Beijing will particularly support the purchase of housing, cars and consumer electronics, petrochemical firms anticipate a growth in demand for their products.
"Korean chemical firms producing materials for the exterior of IT devices can become beneficiaries," Yuanta Securities analyst Hwang Kyu-won said.
Over the past couple of years, Korean petrochemical companies have suffered deteriorating profits in the aftermath of a global oversupply of Chinese petrochemical products. The government estimated the size of the global oversupply of petrochemical products will reach 61 million tons in 2028, up from 44 million tons in 2023.
Once China's stimulus plan increases the country's domestic demand, petrochemical firms are likely to find buyers, overcoming the glut in the industry.
Additionally, a potential ceasefire in Ukraine may lead to an increase in the production of petroleum in Russia, reducing the costs for naphtha, the core raw material for petrochemical products.
In that case, Korean petrochemical firms will be able to secure price competitiveness in the global market.
"Korean companies have lagged behind their Chinese and Taiwanese rivals in terms of cost competitiveness over the past three years," Hana Securities analyst Yoon Jae-sung said. "This resulted from China's purchase of naphtha from Russia at around 5 percent lower prices."
The analyst added that Chinese companies will lose their price competitiveness, if Russia stops selling naphtha to China at low prices after the United States lifts sanctions.
"The decline in oil prices may prompt Middle Eastern countries to scrap their plans to build petrochemical facilities," he said.
English (United States) ·