MOSCOW (MRC) -- South Korea's purified terephthalic acid (PTA) makers are unlikely to restructure or merge anytime soon, as cash flow among producers have not posed an issue thus far, sources from local plants told TPS.
According to a source from South Korea's Samnam Petrochemical, all three domestic PTA producers have no cash flow problems for now.
TPS calculations indicate that PTA makers in South Korea were able to obtain conversion spreads between USD56.46/mt to USD81.14/mt from paraxylene (PX), which was at a lackluster range, but yet close enough to breakeven for basic survival.
"The government's plan to restructure the PTA business will not work in the near future," according to a source from South Korea's Taekwang Industrial.
The ownership structures of PTA makers under different "chaebol" groups continues to be a big hurdle to consolidation, polls of PTA makers suggested.
South Korea's PTA plants are neither as new nor as big as China's ones. Nonetheless, South Korea's plants are well depreciated, meaning that their lower fixed costs can make up for their higher variable costs.
Additionally, at two producers with PTA plants in Yeosu and Daesan enjoy transportation advantages, as their PX can be piped over from neighboring refineries.
"This enabled certain PTA producers to obtain a bigger discount on their PX term contracts," the Samnam source explained.
South Korea's government has recommended a restructuring of the petrochemical industry, with PTA producers specifically urged to reduce production by 30%, or around 1.5 million mt/year of capacity, via voluntary reductions or scrapping of existing facilities.
PTA makers face a difficult 2016 ahead due to market saturation worldwide, according to TPS analyses. South Korea, once one of the world's biggest producers and key exporters of PTA, has been unable to match costs and compete, due to a series of mega-PTA plants that started up in China in recent years despite an economic downturn.
As MRC wrote previously, South Korea’s PTA producers were urged to reduce production by 30% amid worsening market conditions, according to the government’s industrial restructuring plan. The country’s petrochemical industry is one of the five industries that was recommended by the government to undergo restructuring, along with shipping, shipbuilding, steel and construction sectors. Since October 2015, the South Korean government has been pushing ahead with its plan for restructuring industries that have suffered from macroeconomic uncertainty including the slowdown of the Chinese economy and the US Federal Reserve’s interest rates hike.
MRC