SK Gas is set to absorb its wholly owned petrochemical subsidiary SK Advanced after years of financial losses caused by persistent oversupply in the propylene market. The integration is designed to consolidate raw material procurement, production, sales and financial management under one company, helping SK Gas improve operational efficiency and strengthen control over the struggling business.
SK Gas announced on August 26 that its board had approved a merger agreement with SK Advanced. Under the transaction, SK Gas will remain the surviving company, while SK Advanced will be dissolved. No new shares will be issued, meaning the ownership structure of SK Gas will remain unchanged.
SK Advanced operates a propane dehydrogenation (PDH) facility in Ulsan, South Korea, where it converts propane into propylene by removing hydrogen. The plant has an annual propylene production capacity of approximately 600,000 tons. Propylene is a key petrochemical feedstock used to manufacture polypropylene (PP), which is widely consumed in automotive components, household appliances, packaging and other industrial applications.
The business came under increasing pressure after major Chinese producers rapidly expanded PDH capacity. The resulting increase in propylene availability weakened market conditions and placed sustained pressure on SK Advanced’s margins. The company recorded operating losses of KRW 129 billion in 2022, KRW 82.5 billion in 2023, KRW 116.1 billion in 2024 and KRW 140 billion last year. Its cumulative operating losses over four years therefore exceeded KRW 460 billion.
SK Advanced’s financial position also deteriorated sharply. Its debt ratio increased from 97.6% at the end of 2022 to 406.5% by March this year, while its borrowing dependence rose from 33.4% to 60.8%. Total borrowings stood at KRW 533.7 billion, with about KRW 475 billion, or 89%, classified as short-term debt. Korea Ratings also lowered the company’s corporate bond rating from BBB+ to BBB in June.
Although SK Advanced returned to a KRW 5.3 billion operating profit in the first quarter, mainly due to reduced operating rates among competitors during the Middle East conflict, long-term supply concerns remain. S-Oil’s Shaheen project, expected to produce around 770,000 tons of propylene annually, could add further pressure once operations begin.
Before the merger, SK Gas acquired the remaining foreign-held stakes in SK Advanced, making it fully owned. The company now plans to coordinate propane procurement, plant utilization, propylene production and sales according to market conditions while directly managing the subsidiary’s debt and financing.
The merger follows SK Gas’s broader restructuring strategy. In June, the company sold a 49% stake in Ulsan GPS for KRW 1.2242 trillion. By monetizing profitable power assets while integrating its loss-making petrochemical operations, SK Gas aims to strengthen its financial structure and improve the overall efficiency of its business portfolio.
Product Impact and Chemical Commodity Price Impact
The absorption of SK Advanced is likely to have a neutral to moderately supportive impact on propylene and polypropylene operations in the near term, as SK Gas gains greater control over propane procurement, production rates and sales. However, the merger does not remove the underlying oversupply problem. Additional Chinese PDH capacity and S-Oil’s new propylene output could keep regional supply elevated. Therefore, propylene prices may remain under downward pressure, while PP prices could also face limited upside because of ample feedstock availability. Better production discipline and plant utilization adjustments may provide temporary price support, but sustained recovery will depend on demand growth and capacity rationalization across Asia.
About ChemAnalyst
Leave a Comment
Comments (0)