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High crude costs make industries mull surrender

Petrochemical, auto makers join airlines on list of the endangered  PLAY AUDIO

July 05,2008
There seems to be no end to surging energy costs as companies raise the white flag of surrender.

West Texas Intermediate exceeded the $140 per barrel mark on June 27. Within a week, it reached $145. If the price peaks above the $150 mark, many experts expect that the global economy will suffer an oil shock similar to the ones in the 1970s.

Businesses hugely dependent on fossil fuel, including the petrochemical industry, the travel industry and the automobile industry, are taking the toughest blows.

The petrochemical industry is getting beat up badly as it relies on naphtha as raw material. Samsung Petrochemical Co. closed down a PTA (purified terephthalic acid, used to make polyester) factory in Ulsan last month, which had an annual output totaling 200,000 tons. The company said that it had no plans at present to reopen. Samnam Petrochemical Co. and KP Chemical Co. have either stopped or reduced operations in their PTA factories since May.

Since last year, petrochemical companies have been stopping operations temporarily for BTX (a mixture of Benzene, Toluene and Xylene), ethylene and synthetic resin. At present, the rate of operation for local petrochemical plants is 80 to 90 percent. Early last year, the rate was nearly 100 percent.

“If oil prices hit $150 per barrel, the rate of operation for the plants will fall below 70 percent,” said Kim Pyeong-jung, head of research at Korea Petrochemical Industry Association.

The travel industry is in serious shock as well, with fuel costs almost doubling compared to the same period last year.

Korean Air saw a net loss of 300 billion won ($285.6 million) during the first quarter of this year. It canceled 12 routes including the Incheon-Guam route and has temporarily stopped operations on five routes. In an effort to spend less fuel, Asiana Airlines, the nation’s other flagship carrier, reduced the weight on its aircraft by carrying less water and printed materials on flights. It also replaced on-flight carts that weigh 27.3 kilograms (60 pounds) to lighter 20-kilogram ones. The company has also reduced or canceled six routes.

Automobile companies are not exempt from the economic hemorrhaging. Domestic car sales this May for five of the nation’s top automobile companies dropped as much as 9 percent, according to Yonhap news. The Korea Automotive Importers and Distributors Association announced that last month, the number of newly registered foreign-made cars in Korea dropped 7.9 percent compared to this May, to 5,580 cars. “In June, the number of newly registered cars dropped because some companies couldn’t meet the demand for their models,” said Yun Dae-sung, an executive at Kaida.

Small to medium-sized ventures selling plastic products are also sharing the burden as synthetic resin prices have risen almost 50 percent compared to the beginning of the year, according to industry experts.


By Cho Jae-eun Staff Reporter [jainnie@joongang.co.kr]


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