Now, the South Korean government is increasing the heat on its domestic chemical industry. They are calling on the industry to stop the upcoming, crippling ethylene market supply glut. Even LG Chem, one of the largest producers in the industry, is bracing to reduce production by 30 percent. They are only the latest South Korean chemical manufacturers to announce such a dramatic cut. Yet the oversupply is undermining the profitability of companies in this critical link in the commodities chain. Here’s what drove their decision to do so.
The South Korean government has aggressively intervened to favor manufacturers. Through their innovative work, they’re leading these small businesses to meet the new demands of today’s dangerous market. An immediate and hairy challenge for LG Chem and its competitors is a supply glut. This combination has reduced margins and brought increased regulatory focus on the industry. Chemical manufacturers are making big moves to reduce production. They’re using focus and tough strategic choices to get through the rapidly evolving economic reality.
LG Chem, known for its dominant role in the export-driven ethylene sector is another player uniquely positioned to feel the effects of these changes. Now the company has an immediate opportunity to rethink its approach to production. This need comes in light of the financial burden due to over supply that has hurt many companies in South Korea. The proposed 30% reduction is an attempt to bring equilibrium back to the market and improve margins industry-wide.
Time is of the essence. The ethylene oversupply is affecting companies and sending shock waves through the commodities market. Investors and analysts alike are glued to these developments, particularly as they may shed light on the future direction of pricing and market stability. The federal action is a commitment to acknowledge the unprecedented economic crises that confront us. These challenges are underscored when supply far exceeds demand in an important sector.
Giant petrochemical industry in South Korea goes through rocky road. All stakeholders remain optimistic that the application of strategic changes will make for a beneficial result. The temporary cut in output should go a long way toward helping to rebalance the ethylene supply/demand balance to the benefit of all market participants.