LG Chem, South Korea's biggest chemicals company, has decided to scrap plans to build a 3.84 billion euros ($4.15 billion) polyethylene complex in Kazakhstan because of sharply rising costs and falling oil prices.
The company agreed in 2011 to construct the complex, due to produce up to 840,000 metric tons per year of ethylene and 800,000 metric tons of PE, near the western Kazakhstan city of Atyrau. This was part of a 50/50 deal agreed with two Kazakh companies, state owned United Chemical Company (UCC) and the private firm SAT.
But the Korean chemicals giant now says it prefers to divert the investment funds into “more promising" business areas.
“The Kazakhstan project lost its luster because of a steep increase in facility investment amid growing uncertainty. On a business front, LG's top management reached a consensus that it wasn't promising," LG Chem told the Korean Times in a statement this week.
Announcing its decision, the company said it would also drop a plan to invest in polysilicon, a key part of solar cell manufacturing, due to the worsening market situation. This project has been on hold since it was first announced in June 2011, would have involved the construction of a 373 million euros ($407 million) plant to produce 5,000 tonnes per year of polysilicon.
The joint Kazakhstan PE project was part of a key complex planned at Atyrau representing a major initiative by the Kazakh government to develop its national petrochemicals sector. The complex, to be owned and run by Kazakhstan Petrochemical Industries (KPI), was to be based on a 1 million tonnes per year ethylene cracker at Atyrau.
To be built in two phases, the complex involved Sinopec Engineering, part of the Chinese state Sinopec enterprise, constructing the first stage including a 500,000 tonnes per year polypropylene plant in phase one. This was originally due to be completed by 2014. Sinopec was due to buy and export all the plant output.
However, in August 2014, detailed negotiations broke down between KPI and Sinopec and the Chinese firm terminated the engineering, procurement and construction contract after completing basic design, pulling out of the project.
In November of that year, KPI stated the joint venture with the Chinese would still proceed as phase one was still secured with financing from Eximbank of China. KPI planned to partner with another Chinese contractor for the PP scheme.