Asian Petrochemical Companies Face Escalating Pressure from Rising Chinese Production Capacity

Petrochemical companies in South Korea, Taiwan, and Japan are facing an unprecedented wave of pressure stemming from a surge of new Chinese production capacity that has entered the markets over the past two years, leading to a sharp decline in profit margins and an accumulation of inventories across regional markets.

Data from the Asian Chemical Council revealed that China has added new petrochemical production capacity equivalent to double South Korea's total production capacity in just three years, creating a structural surplus in basic products such as ethylene, propylene, and various types of polymers.

In response to this pressure, several major companies such as LG Chem and Lotte Chemical in South Korea and Formosa Plastics in Taiwan have announced plans to shut down economically unviable production units and pivot toward specialized, higher value-added products with larger profit margins in the electronics and healthcare sectors.

Analysts view this crisis as a decisive test of the Asian petrochemical industry's ability to reinvent itself, as those who delay shifting toward next-generation products risk permanently losing their market share.

What Do These Terms Mean?

Ethylene and Propylene: Basic chemicals derived from oil and gas used as raw materials to manufacture plastics, synthetic fibers, and various chemical products—their production is considered a benchmark for the health of the petrochemical industry.

Petrochemical Profit Margins: The difference between the cost of raw materials (oil and gas) and the selling price of the final product—when production capacity increases, selling prices fall and margins narrow until some plants become unviable.

High-Value Petrochemical Products: Specialized products such as EV battery separators, medical materials, and substances used in electronic microchips—their margins are higher and their demand grows faster than standard commodity products.