The Fair Trade Commission approved the "Daesan No. 1 Project" business combination in South Chungcheong Province, the first structural realignment submitted by South Korea's petrochemical industry. The approval came with a condition capping product price increases over the next five years.
The commission said on the 20th that it granted conditional approval after reviewing a combination under which HD Hyundai Chemical will absorb Lotte Daesan Petrochemical, with Lotte Chemical and HD Hyundai Oilbank each holding a 50% joint stake in the merged entity, HD Hyundai Chemical. As a result, the two companies' petrochemical production facilities in the Daesan industrial complex will also be operated jointly.
The petrochemical industry drew up the "Daesan No. 1 Project" restructuring plan late last year as it struggled with oversupply from China. The plan received government approval in February this year and has now cleared the commission's merger review as well.
The commission proposed the price restriction, saying the merger could weaken competition in some petrochemical products. The markets it flagged were those for low-density polyethylene (LDPE) and ethylene-vinyl acetate (EVA). LDPE is used in wire coatings, paper cup coatings and food containers, while EVA is used in shoe soles and yoga mats. The combination will reduce the number of major suppliers in these markets to three from four. After the combination, the three companies' combined market share by sales volume will reach 82% for LDPE and 95% for EVA.
The commission judged that fewer suppliers after the combination could make it easier for competitors to coordinate prices, and raised concerns that low-margin products could be discontinued or subject to price increases.
The commission therefore allowed the combination but decided to limit changes in domestic LDPE and EVA prices for five years, using export price movements as the benchmark. It also required the companies to continue supplying products currently in production when domestic buyers request them, and moved to restrict the sharing of competitively sensitive information such as prices, quantities, costs and inventory between the two companies and their affiliates. It banned dual appointments of executives and staff, and required that some employees returning to Lotte Chemical be excluded from LDPE- and EVA-related work for one year.
If competition concerns persist after five years, the corrective measures can be extended. A commission official said, "Starting with this combination, we plan to closely examine the impact on market competition of subsequent petrochemical restructuring, such as the Yeosu No. 1 project."
