Lotte Chemical Corp. and HD Hyundai Co. are negotiating a consolidation of their naphtha cracking facilities in South Korea’s Daesan complex, representing the first major self-directed restructuring by domestic petrochemical producers grappling with Chinese oversupply.
The two companies have engaged a major accounting firm to evaluate assets and determine fair value for a potential joint venture, according to investment banking sources. The discussions began earlier this year after Lotte’s unsuccessful attempts to partner with LG Chem Ltd. and DL Chemical Co.
Korean petrochemical manufacturers have suffered consecutive years of margin compression as Chinese capacity expansion and weak demand devastated profitability. Lotte Chemical reported operating losses of 895 billion won ($619 million) in 2024, marking its largest loss since 2011. HD Hyundai Chemical posted a 284 billion won loss.
The proposed merger would integrate Lotte’s 1.1 million-ton annual ethylene facility with the existing HD Hyundai Chemical joint venture, which produces 850,000 tons yearly. Combined, the operation would reduce redundant competition while cutting costs through shared management and enhanced procurement leverage.
Capacity utilization in Korea’s naphtha cracking sector has plummeted to around 70% from 90% just a few years earlier, as China achieves near self-sufficiency in petrochemical production. Korea’s dependence on Chinese markets, which account for 35% of exports, has intensified vulnerabilities.
The South Korean government has unveiled 3 trillion won ($2.1 billion) in policy financing and regulatory reforms to encourage voluntary industry restructuring. A Boston Consulting Group study commissioned by the Korea Chemical Industry Association recommends reducing generic production capacity by up to 50%.
The Lotte-HD Hyundai talks signal broader consolidation pressures across Korea’s petrochemical sector, with analysts expecting similar moves as companies seek survival strategies in an oversupplied market.
