Sinopec, which owns the left 65% stake, is the most expected purchasers as China tightens audit of foreign stakes in strategic industries
South Korea’s pioneering conglomerate SK Group is selling its whole 35% stake in Sinopec-SK Petrochemical, its joint project with Chinese energy giant Sinopec – a retreat from the commodity chemicals sector as oversupply and falling margins weigh on the industry.
The sale is being led by SK Geo Centric Co., a subsidiary of SK Innovation Co., which has started talks with China Petroleum & Chemical Corporation., higher referred to as Sinopec, the JV’s 65% stakeholder, and numerous different Chinese bidders, in line with people well-known with the matter on Tuesday.
The transaction is anticipated to be priced around its book cost of 819.3 billion won ($594 million), sources stated.
Established in 2013 with a blended investment of 3.3 trillion won, the Wuhan-based plant was once the symbol of SK’s “China Insider” strategy.
The joint project plant can create 3.2 million tons of general-reason chemicals yearly, consisting of 1.1 million tons of ethylene, producing annual sales of approximately 10 trillion won in its peak years.
A SUCCESS STORY TURNED BAD
For a lot of the past decade, the venture was a exceptional success story.
In its first 8 years, the joint venture posted a total operating profit of almost 2 trillion won, gaining from supply shortages in ethylene, the main building block of the petrochemical industry.
But since 2021, the plant has racked up more than 1 trillion won in losses, compressed by of a surge in Chinese manufacturing ability and stagnant domestic requirement.
Ethylene output in China nearly doubled between 2020 and 2023 to attain 60 million tons.
“The restructuring of SK’s petrochemicals business is no longer limited to Korea. It is spreading to its remote assets as well,” stated an industry executive. “The organization has made clear it will lessen businesses without a clear future, so similarly retrenchment in Ulsan can not be ruled out.”
SK’S ABC STRATEGY
The retreat underscores a broader pivot by the Korean conglomerate closer to what it calls an “ABC” strategy, brief for artificial intelligence, batteries and chips.
SK has already closed or sold elements of its commodity chemical operations at domestic and overseas, including shutting one of its naphtha cracking lines in Ulsan and seeking a buyer for the other.
In August, sources stated SK Geo Centric is approaching foreign petrochemical companies to sell the overseas units it obtained from Dow Chemical and France’s Arkema in a combined deal as parent SK Group boosts restructuring efforts to protect fresh capital.
The sale also comes amid an industrywide restructuring drive in Korea.
Korea is one of the world’s largest importers of naphtha, an oil product that is broken down into chemicals utilized in plastics for motors, electronics, clothing and construction.
Korean corporation had been among the most extremely affected by Beijing’s aggressive capacity expansion. With Chinese plants manufacturing generic products at considerably lower prices, Korean firms have been underneath growing financial strain.
SINOPEC, MOST LIKELY BUYER
Analysts stated Sinopec, the world’s largest refiner with 252 million tons of crude processed last year and 13.5 million tons a year of ethylene manufacturing potential, is the most likely client.
Full ownership of the Wuhan plant would allow the state-owned giant to streamline choice-making and incorporate the facility into its comprehensive refining-to-chemicals supply chain, sources stated.
Beijing’s constraining scrutiny of foreign stakes in strategic industries additionally strengthens the case for Sinopec to take full control, analysts stated.
SK’S FUTURE BETS
Proceeds from the sale are anticipated to be channeled into SK’s future boom bets.
The conglomerate has committed to make investments 8.2 trillion won by 2030 into AI and semiconductors, which include a massive-scale AI data center in Ulsan evolved with Amazon Web Services.
SK Hynix Inc., one of the world’s two main memory chipmakers, is likewise stepping up advanced packaging capabilities for AI chips, at the same time as SK Innovation is growing energy storage and cooling systems tailored to data infrastructure.
“The generation of commodity chemicals as a boom driver seems to be over for SK,” stated a person close to the deal. “Its next chapter will be written in AI and chips, no longer ethylene.”
