Boosting Demand Through Economic Stimulus

Korean petrochemical firms are showing cautious optimism as China unveils a major economic stimulus plan aimed at boosting domestic demand. The initiative, announced during the National People’s Congress from March 5 to 11, includes a 300 billion yuan ($41 billion) fund to encourage consumers to upgrade old products with new ones. The measure is part of Beijing’s broader strategy to maintain a 5 percent economic growth target for the year.

The stimulus plan prioritizes support for housing, automobiles, and consumer electronics, raising hopes that the demand for petrochemical products—essential in manufacturing these goods—will increase. Industry analysts predict that Korean chemical companies specializing in materials for IT device exteriors may particularly benefit from this shift.

Addressing the Global Supply Glut

The petrochemical industry has struggled with declining profits due to an oversupply of Chinese petrochemical products, which has saturated the global market. The oversupply, estimated at 44 million tons in 2023, is projected to surge to 61 million tons by 2028, further straining international producers.

With China’s stimulus plan set to enhance local consumption, demand for petrochemical products is expected to grow, potentially alleviating the industry’s surplus. Korean firms, which have faced tough competition from Chinese counterparts, may find new buyers in the market, allowing them to stabilize revenue streams.

Impact of Geopolitical Developments

Beyond China’s domestic economic policies, global geopolitical shifts may also play a crucial role in shaping the petrochemical sector. A potential ceasefire in Ukraine could lead to an increase in petroleum production from Russia, subsequently reducing the cost of naphtha—a key raw material in petrochemical manufacturing.

For years, Korean petrochemical firms have struggled to compete with Chinese and Taiwanese producers due to higher material costs. China, benefiting from discounted naphtha purchases from Russia, has been able to maintain a price advantage of about 5 percent. However, if sanctions are lifted, Russia may discontinue selling naphtha at reduced prices to China, potentially diminishing the cost gap and restoring competitiveness to Korean manufacturers.

Additionally, a drop in oil prices could prompt Middle Eastern nations to reconsider their plans for expanding petrochemical production facilities, further stabilizing market dynamics. With these factors at play, industry experts foresee an improved outlook for Korean petrochemical firms as they regain footing in the global market.

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