HPC Strives to Be World-
Class Petrochemical Co.

The domestic petrochemical industry braces for global overcapacity

The following are the excerpts of an interview with Honam Petrochemical Corp. CEO Lee Young-il on the occasion of the 30th anniversary of the joint dedication of the Yeosu Petrochemical Complex. Lee is also concurrently chairman of Korea Petrochemical Industry Association (KPIA). ― Ed.
Q: Will you tell our readers about the current status of the Korean petrochemical industry on the occasion of the 30th anniversary of the joint inauguration of the Yeosu Petrochemical Complex?
A: The domestic petrochemical industry has made rapid strides during the past 30 years to serve as a driving force behind the development of the economy.
The industry witnessed petrochemical production surging from 184 billion won in 1975 before the joint inauguration of the Yeosu Petrochemical Complex to 44 trillion won in 2005, representing a whopping 240-fold jump during the 30-year period. Petrochemical exports also soared from $40 million in 1975 to $20.8 billion in 2005 to represent a whopping 520 climb.
Thanks to the remarkable development, the domestic petrochemical industry ranked fourth in terms of production and fifth in terms of exports in 2005 among domestic manufacturing industrial fields. Korea ranked fifth with 5.67 million tons of ethylene production after the United States, Japan, Saudi Arabia and Japan.
Q: Will you elaborate on the prospects of the domestic and global petrochemical industries in connection with a large-scale petrochemical plant expansion in China and the Middle East?
A: The global petrochemical industry is an industrial field with a business cycle; the industry is entering a recession phase after putting an end to a boom between the late 2004 and the early 2005. China and the Middle East are getting stronger to influence the future prospects of the global petrochemical industry.
The Middle East with an upper hand in future facility investment costs is expected to take a lead in the global market together with China, the world's largest import market.
The global petrochemical industry is predicted to suffer a setback due to a decline in operation rate and business recession after 2008 when new plants and expansion become operational. In particular, the Middle East has an overwhelming upper hand over Northeast Asia, including Korea, with its ethylene production cost standing at about 30 percent of the latter's.
The Middle East is expected to see its global market share expanding from 9 percent in 2005 to 19 percent in 2010. Due to their narrow domestic demand, Middle Eastern countries are forecast to divert their expansion into exports, dealing a severe blow to the export-oriented domestic petrochemical industry.
Q: What steps are designed to reinvigorate and advance the domestic petrochemical industry?
A: The Korean petrochemical industry is throwing its heart and soul into coping proactively with external uncertainties like more stringent international environmental restrictions as well as ever-worsening competition, caused by the Middle East's fast chase and China's growing self-sufficiency.
The domestic petrochemical industry is striving to strengthen competitiveness products in wide use to reposition itself as a leader of the global market, while exploring diverse strategies like the development of future demand-oriented cutting-edge materials and environment-friendly industry realization.
The industry is focusing on exploring value-added demands by establishing a technology development system in association with futuristic demands of information, electronics and new materials with a potential for growth. It is making efforts to develop an environment-friendly industrial foundation to brace for the conventions on climate change and environmental restrictions.
Q: Will you give the details on Honam Petrochemical Corp.'s business performance and strategies?
A: Honam Petrochemical Corp., established in 1976, is a comprehensive petrochemical company which has focused on the development of advanced petrochemical technology to contribute to the development of the domestic petrochemical industry. The company has achieved vertical integration ranging from raw materials to products through plant and business expansion, and it now produces a wide range of petrochemical products, including resin products and basic petrochemicals and basic chemicals.
The Yeosu Petrochemical Complex, a world-class petrochemical production center with 16 vertical integration lines, has a naphtha cracking center capable of churning out 720,000 tons of ethylene, 370,000 tons of High Density Polyethylene (HDPE), 380,000 tons of Polypropylene (PP), 400,000 tons of Mono Ethylene Glycol (MEG), Benzene, Toluene, Mixed Xylene (BTX), Polyethylene Terephthalate (PET), Methyl MethAcrylate (MMA) and other intermediate products per annum. HPC retains the No. 1 market share in such products as HDPE, PP and MEG in the domestic market.
Thanks to a focus on strategic items and domestic demand-oriented business structure since 1983, HPC achieved the feast of shattering the 2 trillion won mark in sales in 2005.

The company has turned to aggressive management like M&As ― acquisition of Hyundai Petrochemical Corps'Second Complex (currently Lotte Daesan Petrochemical Corp.) in 2003 and KP Chemical in 2004 to establish itself as Korea's major petrochemical powerhouse with more than 5 trillion won in combined sales of the three petrochemical companies.
HPC has been able to expand the olefin area through Lotte Daesan Petrochemical, penetrate the BTX sector through KP Chemical and conduct active business activities with its production facilities in the nation's major petrochemical centers ― Yeosu (Honam Petrochemical Corp.), Daesan (Lotte Daesan Petrochemical ) and Ulsan (KP Chemical).
The three petrochemical subsidiaries of Lotte Group have chalked up more than $2.68 billion in their annual exports in 2005. Their exporting areas are spreading to all parts of the world centering around five markets ― China, the United States, Japan, Hong Kong and Taiwan. They are striving to focus on expanding sales networks via the existing overseas hubs to raise its overseas competitiveness and building up a foundation in new markets.
In an effort to secure a bridgehead in the Chinese market, HPC established a joint venture with a Chinese company capable of producing Compound Polyethylene in 2003 and acquired other petrochemical firm in September 2006. HPC has branches in Shanghai, Ghangzou and Beijing as well as representative offices in Hong Kong and Qingdao. In July 2006, HPC established a trading company designed to beef up local marketing activities in China by building up a combined network with Lotte Daesan Petrochemical and KP Chemical.
Besides, HPC is working toward continuous growth and development by continuously expanding plants and making investments into new facilities. Under a corporate slogan "Creation of an Affluent Future,"HPC is striving to become more environment-friendly. The company has signed a voluntary agreement on energy conservation with the Ministry of Commerce, Industry and Energy and won such awards as Safety Management Grand Prize and Green Management Grand Prize.
Q: Will you tell your company's R&D outlays and plans?
A: In 1986, HPC established an affiliated research institute at its Yeosu complex to launch a full-fledged research work under a mid- and long-term R&D plan. The research institute moved to the Daeduk Science Town in 1991 to evolve into a comprehensive research body designed to build up specialized research.
Since the establishment of a research institute, HPC has been putting more energy into developing new products to substitute for imports, while having built up a foundation to compete with advanced country in the processing technology sector by developing polyolefin polymerization catalysts and diverse new olefin materials.
Following HPC's acquisition of Lotte Daesan Petrochemical and KP Chemical, their research units moved to the Daeduk Science Town and merged into HPC's research unit in February 2005 and August 2005, respectively to position itself as an integrated research institute with accumulated experiences and expertise. The integrated research institute plans to maximize synergy effects through redoubled support for research into existing products and beef up research on such areas as new product development, precision chemicals, nanocomposite technology, environment, energy and electric/electronics materials.
HPC is pursuing the following strategies to transform itself into a comprehensive petrochemical leader taking the lead the high-profit products and new business exploration. First, it aims at upgrading competitiveness of mainstay businesses with the development of its own technology and competitive edge in production costs and quality. Secondly, the company is striving to explore promising business areas in the future. To this end, it is seeking to collaborate, conduct joint research and forge strategic alliances in securing technology in untapped arenas. Thirdly, it plans to maximize research achievements through choice and concentration, ensure a balanced resources distribution and focus on commercialization of products and research into catalysts and processing. Fourth, it is striving to develop market-oriented technology and commercialize them to have research achievements.
Q: Will you be more specific about the plan to explore HPC's new business areas?
A: HPC is more aggressive in exploring high-return new business areas, departing from the existing petrochemicals in wide use. The company entered the polycarbonate business after introducing the related technology from Ashahikasei Chemical of Japan. HPC has established Daesan MMA, a joint venture with Mitsubishi Rayon to strengthen its presence in the Methyl MethAcrylate (MMA) area and enter the Polymethyle MethAcrylate sector with the goal of evolving into a global corporation.
HPC signed an MOU with Qatar's state-run petrochemical company, Qatar Petroleum to become the first Korean company to build a petrochemical company in the Middle East. The $2.6 billion project is to be finished by 2010. Qatar Petroleum takes a 70 percent stake into the project, and HPC, the remaining 30 percent. If and when the planned complex is dedicated, HPC is expected to have an upper hand in terms of production costs to compete with global petrochemical companies.
Q: Will you introduce your company's mid- and long-term management plans?
A: HPC has declared the new vision, "Exploring New Horizons"on the occasion of the 30th anniversary since its founding. HPC is striving to explore the future together with Lotte Daesan Petrochemical and KP Chemical with the goal of achieving 10 trillion won in combined sales in the year 2014. To this end, the three companies have implemented such steps designed to develop new growth foundation and performance merit system, beef up strategic human resources, and yield stable profits.
HPC is aiming to strengthen its presence in the petrochemical area and develop core chemical technologies, including specialty polymer, precision chemicals, and bio-technology as part of its efforts to evolve into a futuristic chemical corporation. The company is committed to conducting corporate activities focusing on customers and environment so that clients and society can share an affluent future.
HPC is making efforts to achieve growth, yield stable profits and contribute to society despite rapidly changing management environment with an eye to becoming a world-class petrochemical company. nw

(From left) Honam Petrochemical Corp. CEO Lee Young-il, concurrently chairman of Korea Petrochemical Industry Association. A nocturnal view of HPC's Yeosu Petrochemical Complex. CEO Lee is on an inspection tour to a site.