FTC Conditionally Approves Petrochemical Merger
The number of suppliers in the domestic low-density polyethylene (LDPE) and ethylene vinyl acetate (EVA) markets will decrease from 4 to 3. The Fair Trade Commission announced on August 20 that it has reviewed the business combination pursued by Lotte Chemical and HD Hyundai Chemical and decided on
On August 20, the Fair Trade Commission (FTC) announced its decision to conditionally approve the merger between Lotte Chemical and HD Hyundai Chemical in the domestic low-density polyethylene (LDPE) and ethylene vinyl acetate (EVA) markets. This move aims to support the 'Daesan Project 1', a strategy devised by the petrochemical industry to counteract oversupply from China.
The FTC explained that the merger will result in the number of suppliers in these markets decreasing from 4 to 3. The merged entity, controlled jointly by Lotte Chemical and HD Hyundai Oilbank with each holding a 50% stake, will operate major production facilities like the Naphtha Cracking Center (NCC) within the Daesan Industrial Complex in an integrated manner.
This consolidation is expected to significantly reorganize production capacity shares, with the top three companies accounting for approximately 50% to 25% to 25% of the market, and their combined sales volume exceeding 75%.
The FTC imposed a condition on the merger to address potential competition restrictions. They mandated that the domestic price fluctuation rate of LDPE and EVA, based on export price fluctuations, must be monitored for the next 5 years. Under this regulation, if export prices rise or stabilize, domestic prices are prohibited from increasing at a rate exceeding the export price increase.
Conversely, if export prices fall, domestic price decreases must be set higher than the export price decrease. The FTC affirmed that this regulation can be extended if the anti-competitive nature persists after the 5-year period.
To counteract potential monopolistic practices, the FTC established a firewall against information sharing and personnel exchanges among related affiliates. The sharing of sensitive information, including prices, quantities, costs, and inventory, among HD Hyundai Chemical and Lotte Chemical is strictly prohibited. Additionally, executives and employees from both companies are barred from holding concurrent positions, and any personnel transferred during the restructuring process must refrain from related work at their original company for a year.
The FTC is currently reviewing a second reorganization plan that involves Lotte Chemical jointly controlling Yeochun NCC with Hanwha Solutions and DL Chemical.
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