South Korean petrochemical makers are racing to upgrade their naphtha cracking facilities to cash in on resurgent demand for plastics in Asia, led by China, after its worst slump in late 2008 due to the recession.

LG Chem will raise its Daesan naphtha cracker capacity by 100,000 tons per year (tpy) to 900,000 tpy next March, bringing its total cracking capacity to 1.9 million tpy, industry sources said on Thursday.

The expansion at the country's No. 2 petrochemical maker will bring its total capacity on par with top ethylene maker YNCC. Another South Korean petrochemical maker, Samsung Total, will raise its capacity by nearly 18% to 1.0 million tpy next year.

It will shut the cracker, where current capacity is 850,000 tpy, in May for about 45 days for the upgrading works.

The higher cracking capacities from LG Chem and Samsung Total will add around 750,000 tons of naphtha demand a year from South Korea, keeping the market for the petrochemical feedstock in a healthy mode.

Come 2012, Honam Petrochemical, currently the No. 3 ethylene maker, may even replace YNCC and LG Chem to take the top spot if it decided to push on with plans to raise total cracking capacity to 2 million tpy from 1.75 million tpy, sources said.

"South Korean crackers are expanding their capacities and will continue to export to China," said a trader.

Strong Recovery From Slump
China is the key petrochemical export market for most Asian petrochemical makers, although its domestic capacities are increasing.

For now, petrochemical margins are still healthy, and have even prompted South Korea's top oil refiner SK Energy to restart a 200,000-tpy cracker after a two-year shutdown.

This has boosted the overall sentiment for naphtha feedstock.

Cracks, the premiums/losses obtained from refining Brent crude into naphtha, were at $139.95 a ton premium. Although these values were the lowest in three weeks, they sharply contrasted against cracks on Nov. 4 2008, which were at historical lows of minus $189.75 a ton. The financial crisis two years ago had severely crippled regional petrochemical demand.

Some traders said the expansions will also help cracker operators to maximize economies of scale.

"Smaller crackers are usually not cost-efficient," said another trader.

LG Chem will shut its Daesan cracker, currently with a capacity of around 800,000 tpy, for about 45 days starting end-March for maintenance and expansion works.

It operates another cracker in Yosu, where the capacity was raised by 100,000 tpy to 1 million tpy in 2010.

LG's spokesman could not immediately comment on the expansion plans. But its vice vice-chairman and CEO, Bahnsuk Kim, had said in July 2009 that LG was considering expanding the 800,000-tpy cracker capacity at Daesan by 100,000 tpy.

YNCC has no plans to expand its capacity next year, but will shut the largest of its three crackers for maintenance.

YNCC will shut its 857,000-tpy cracker in Yeochun for about a month starting early April. Its other two crackers will not undergo maintenance next year, traders said.