The chemical industry in Korea is a case study in strength and resilience, not surprising in a country where the GDP has tripled every decade since the 1960s (1). Even during the global recession, Korean chemical companies maintained impressive performance levels, based in large part on exports to China.
However, this focus on Chinese markets also means that Korean chemical companies are now feeling the effects of China’s slowing economic growth, the devaluation of the yuan, and new government policies favoring chemical products made in China over imports. Further uncertainties arise from a high dependency on petrochemical production and downward price pressures due to low oil prices.
Future growth will depend on a restructuring and consolidation of the industry, a shift away from basic petrochemicals, and the pursuit of new opportunities in the specialty chemical sector.
“Compressed development” is a term often used to describe rapidly emerging economies, and it certainly applies to the Korean chemical industry. Much of the development in the chemical sector is in line with the expansion of Korea’s national economy. Over the past six decades, Korea has grown to become the world's 13th largest economy by GDP2 and now ranks among the world’s top 10 economies in terms of foreign reserves, exports, and total trade.3
The chemical industry is the third-largest industry in Korea’s manufacturing sector and one of the largest industries in the country. The largest segment —36 percent — of the industry is represented by basic petrochemicals, including ethylene, propylene, Mixed C4 and BTX products such as benzene, toulene and xylene. Based on industry capacity for ethylene, polyethylene (PE) and polypropylene (PP), Korea ranks fourth in the world, surpassed only by China, the US and Saudi Arabia.4
In light of the recent downturn in the Korean chemical industry, Korean companies will need to pursue a focus on new product development in advanced technological areas and changes in business models that can drive operating efficiencies. Further collaboration with foreign multinationals will be required that involve sharing domestic production facilities to reduce costs and entering into joint ventures with companies that offer proprietary technology in growth sectors such as semiconductors and electric car products. Korean companies will also need to reduce their reliance on Chinese markets by pursuing greater access for Korean products in other overseas markets.
The Korean chemical industry enjoys many advantages including a high technological base and strong domestic manufacturing and consumer demand, but the inexorable growth of demand from nearby China has provided easy access to growth and profitability for even the most inefficient of producers. Now that the Chinese growth story is slowing, the most successful Korean chemical companies will be those that adapt to the challenges of driving cost and process efficiency; technological product development; and international growth through expansion and partnering.
1 Best Countries for Business, Forbes, 2014, http://www.forbes.com/places/south-korea/. See also The Scorecard onDevelopment, 1960-2010: Closing the Gap?, DESA Working Paper, 2011; IndexMundi, http://www.indexmundi.com/g/g.aspx?c=ks&v=66; and Korea: A Case for Government-led Development, Kihwan Kim and Danny M. Leipziger, 1993
3(Bank of Korea)