Daelim C4 plans could upset global balances

05 February 1994 00:00  [Source: ICB]

By Keyvan Hedvat in Seoul

DAELIM INDUSTRIAL, one of South Korea's biggest butadiene producer/exporters is planning to raise its production and exports of butadiene dramatically this year.

Such a move, if repeated across the Korean petrochemical scene, would help create a glut of butadiene balances over the next few months.

Other Korean players, like Hyundai, do not see this as part of a trend of higher butadiene exports, so Western fears of butadiene oversupply may not have to turn into panic for now.

US and west European butadiene producers have been assuming that Korean exports would drop this year, with flows to the US set to fall from some 110 000-120 000 tonne/year during 1993 to 80 000-90 000 tonne/year in 1994.

Some have been saying that the South Koreans may come to recognise what Western players describe as the illogical situation of Korea's exporting butadiene at a loss, given high shipping costs. A 'sensible' step for the Koreans would be to install butadiene hydrogenation units, following similar moves in western Europe, it is argued.

A UK player, for example, points out that Korea is a big net importer of high cost butane, and that with butadiene hydrogenation it could doubly serve its trade balance position by cutting its losses on butadiene exports and saving on butane imports.

Some Korean producers would support the first assertion on their national butadiene exports. But Daelim, which has a nominal butadiene capacity of 86 000 tonne/year at its extraction unit in Yeochon, has told ECN that its actual production would rise from last year's 74 000 tonne/year to around 100 000 tonne/year during 1994, partly through increased crude C4 purchases for MTBE, raffinate 1 and butadiene output.

South Korean butadiene derivatives output and trade, tonne
	1993	1992	Growth, %
Butadiene
Production	479 660	373 656	28
Import	0	0	-
Export	221 422	132 935	67
SBR
Production	147 536	125 633	17
Import	28 500	29 220	-2
Export	59 547	45 070	32
Polybutadiene rubber (BR)
Production	88 577	81 691	8
Import	10 283	18 336	-44
Export	38 443	37 735	2
Source: KPIA

Exports would, therefore, rise by 25 000 tonne to 95 000 tonne/year, with US-bound flows set to see a 50% hike from 20 000 tonne in 1993 to 30 000 tonne this year.

Daelim does not share the analysis of Hyundai that other Far East markets, like Taiwan, will see increased demand this year, given that Taiwan's CPC is set to start up a 60 000 tonne/year butadiene extraction unit in the coming months alongside the new CPC 5 cracker at Kaohsiung. There is widespread consensus that US consumption will rise.

The second assertion on hydrogenation is more roundly contradicted. Daelim points out that petrochemical companies would have to sell butane created through butadiene hydrogenation to domestic refineries - themselves producers of LGP/butane - very cheaply.

This is because Korean law forbids merchant market sales of petroleum products by petrochemical companies just as it forbids refineries from engaging in the petrochemicals business.

In the meantime, with most Korean crackers running at full stretch to meet demand and to out-compete one another, butadiene will be produced. And indeed Daelim asserts that its butadiene business is not losing money. Variable costs are just covered,' one senior source says.

* Hyundai is to start construction this year of three new butadiene derivatives plants at Daesan, South Korea. It is anticipating completion late next year for a 40 000 tonne/year polybutadiene plant, a 30 000 tonne/year SBR unit, and a 12 000 tonne/year acrylonitrile-butadiene rubber unit.

But acknowledging anticipated problems in finding sufficient customers in the Asia-Pacific region, it is now considering joint marketing proposals by Goodyear Tyre and Rubber, its licensor, under which the US player would take a large chunk of the new material to supply its own regional tyre-producing subsidiaries and find other Asia-Pacific customers through its long established marketing channels. Hyundai sources say such a deal would secure long-term custom, but may place too much power in the hands of its erstwhile US partner.

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