South Korea’s SK Global Chemical Co. will completely close down its naphtha cracking center (NCC) in December and synthetic rubber production within the second quarter as part of its reorganization efforts to shift to more high-end materials.

SK Innovation said Thursday that its chemical subsidiary will shut down the loss-making plants in Ulsan this year.

The NCC that began operation in 1972 is the nation’s oldest naphtha cracking facility capable of producing 200,000 tons of ethylene a year. The ethylene has been supplied to chemical firms in the Ulsan petrochemical complex and SK’s polymer factory.

The naphtha cracking business produces base materials used in manufacturing petrochemical products. But the competition is getting intense both in Korea and China as newcomers flood in the industry due to low entry barrier. The falling prices caused by the oversupply have seriously damaged the company’s bottom line.

“SK Global Chemical is in full transition to a high value-added chemical materials producer to prevent its business from being heavily influenced by the market situation,” an official from the company said, adding that the closedown is inevitable for future growth.

The aging facility with low capacity has also been undermining the firm’s competitiveness in ethylene manufacturing. The company’s ethylene output will cut from the current 870,000 tons to 670,000 tons after the shutdown, compared to the annual output of more than 2 million tons of its local rivals including LG Chem and Lotte Chemical.

In addition, SK Global Chemical will completely close down its ethylene propylene diene monomer (EPDM) rubber plant within the second quarter, a business that has also been hit hard by oversupply and facility obsoleteness.

The company CEO Na Kyung-soo sent a letter to the employees on Wednesday that he had no choice but to close down the factories as part of a selection and concentration strategy, adding that the company will work hard to become a global leader in high value-added chemical business.

By Won Ho-sup and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]