South Korean prosecutors are investigating seven petrochemical companies over suspected price fixing, adding an antitrust threat to an industry already contending with Chinese overcapacity, restructuring and rising raw-material costs.
The fair-trade investigation unit of the Seoul Central District Prosecutors’ Office searched offices connected with seven companies, including Hanwha Solutions, LG Chem and Aekyung Chemical, according to industry sources cited by the Korea JoongAng Daily. The searches took place last week, the publication reported.
Prosecutors suspect the companies may have coordinated prices over a period of years for eight petrochemical products, including polyvinyl chloride, plasticizers and caustic soda, according to the Korea JoongAng Daily. South Korea’s Fair Trade Commission had conducted inspections at the companies in May, the newspaper reported.
The investigation threatens to complicate an already difficult period for one of South Korea’s major industrial sectors. Petrochemical producers are pursuing government-backed restructuring as expanded Chinese production has reduced demand for Korean exports and pressured margins.
An industry source questioned the economic rationale for collusion during a prolonged downturn in which buyers have access to competing Chinese products, according to the Korea JoongAng Daily. The source said the investigation would add to the strain companies are experiencing as they attempt to restructure.
The probe also comes as recent earnings at some producers may prove difficult to sustain. Hanwha Solutions and Lotte Chemical were among companies that remained profitable in the second quarter, but industry participants attributed some of the improvement to the timing of raw-material purchases, the Korea JoongAng Daily reported. Companies had secured naphtha and other feedstocks at lower prices before a conflict involving the US, Israel and Iran pushed international petrochemical prices higher, temporarily expanding margins.
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Related: South Korea’s Antitrust Agency Raids Petrochemical Firms in Price-Fixing Probe
Financial-data provider FnGuide forecasts Hanwha Solutions’ operating profit will decline to 191.5 billion won ($135 million) in the third quarter from 306.5 billion won in the second, according to figures reported by the Korea JoongAng Daily. LG Chem’s operating profit is projected to drop to 223.3 billion won from 599.6 billion won, while Lotte Chemical is expected to record an operating loss in the third quarter and remain unprofitable in the fourth.
Industry economics have deteriorated as the gap between feedstock and finished-product prices has narrowed. An industry source told the Korea JoongAng Daily that the spread between naphtha and ethylene generally needs to be about $250 a metric ton for producers to make money. The spread briefly reached roughly $500 after the outbreak of war but subsequently contracted to around the $100 level, according to the report.
Naphtha prices climbed about 70% from January through June, rising from $62.74 a barrel to $106.86, the Korea JoongAng Daily reported. Producers have also had to adjust their supply chains because of uncertainty surrounding the Strait of Hormuz, increasing purchases from the US, India and other markets as Middle Eastern supplies became harder to secure. Longer shipping routes have raised transportation expenses, while international pricing limits producers’ ability to pass those costs on to customers, according to the publication.
The more persistent challenge is China. Once a major destination for South Korean petrochemical exports, China has substantially expanded domestic production capacity and increased its self-sufficiency, reducing opportunities for Korean suppliers since 2022, according to the Korea JoongAng Daily.
South Korean producers are responding with government-supported restructuring initiatives, including plans to consolidate naphtha cracking operations. Chinese capacity expansion is expected to continue through 2027, an industry source told the Korea JoongAng Daily, suggesting oversupply could remain a drag on the sector for several more years.
The antitrust investigation now introduces a legal and regulatory risk at the same time companies are being pushed to reduce capacity and restore profitability. The Korea JoongAng Daily did not report that prosecutors had reached a final determination that the companies violated competition law.
Source: Korea JoongAng Daily
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