Seven South Korean petrochemical giants, including LG Chem, were raided on suspicion of colluding to manipulate price increases for chemical raw materials such as PVC.

Prosecutors launch compulsory investigation; 7 petrochemical companies raided simultaneously

On August 5, the Fair Trade Investigation Division of the Seoul Central District Prosecutors' Office in South Korea officially launched a compulsory investigation, conducting seizure and searches on the offices of LG Chem, Hanwha Solutions, AK Chem, OCI, Lotte Fine Chemical, PKC, and UNID, a total of 7 domestic petrochemical companies, as well as the relevant responsible persons involved. Investigators stationed themselves at the company sites to obtain core evidence such as internal meeting minutes, inter-company communication documents, quotation ledgers, transaction contracts, and price adjustment summaries, in order to verify the specific facts of price collusion. These materials will serve as key basis for whether to prosecute subsequently.

This investigation targets companies suspected of violating South Korea's "Fair Trade Act." Clues in the possession of the prosecutors indicate that the companies involved were not engaged in short-term, temporary collusion, but rather conducted prior communication and coordination regarding the timing and magnitude of price increases for 8 types of petrochemical products over a period of several years. Through coordinated operations, they raised market selling prices and squeezed the profit margins of downstream processing companies. Market sources suggest that the companies allegedly seized the opportunity brought by fluctuations in naphtha feedstock due to geopolitical conflicts in the Middle East to simultaneously push up quotations for terminal chemical products, amplifying the price increases resulting from rising costs.

Origin: Fair Trade Commission conducted preliminary screening, transferred clues to Prosecutors

This raid by the prosecutors was not sudden; the source of the case traces back to an antitrust investigation by the Korea Fair Trade Commission (KFTC). In May of this year, the KFTC detected clues regarding price anomalies in the petrochemical industry and conducted the first round of on-site investigations on some companies, preliminarily screening for pricing anomalies in core products such as PVC and plasticizers, and collecting market reports, feedback from downstream companies, and industry transaction data.

After months of organizing evidence, the regulatory agency transferred the case to the prosecutorial authorities. The scope of the investigation expanded from the previous 4 companies to 7, adding chlor-alkali categories such as caustic soda and hydrochloric acid, expanding the investigated categories to 8 bulk chemical raw materials. This is also the largest antitrust investigation targeting the petrochemical industry in South Korea this year, aligning with the South Korean government's regulatory direction to crack down on price gouging of bulk commodities and safeguard the interests of downstream small and medium-sized enterprises.

Core products involved cover multiple industrial chains, penetrating industrial and construction sectors

The PVC, plasticizers, caustic soda, and hydrochloric acid under investigation this time are all basic bulk chemical raw materials with long industrial chains that widely transmit to various实体 industries such as construction, electronics, and chemical manufacturing.

Polyvinyl Chloride (PVC), with naphtha as its main raw material, is one of the most widely used general-purpose synthetic plastics globally. It is extensively used in construction pipes, door and window profiles, flooring materials, and outer sheaths of wires and cables. South Korea's domestic PVC capacity supplies both domestic demand and export markets, possessing a certain influence over the East Asian plastic supply chain.

Plasticizers, the most important supporting chemical additive for PVC, primarily function to reduce plastic hardness, making PVC materials soft and elastic. The production of soft PVC flooring, hoses, cable insulation layers, and plastic products relies heavily on this product. The prices of plasticizers and PVC are highly linked; coordinated manipulation of both will directly impact the costs of downstream plastic processing enterprises.

Hydrochloric Acid, a basic inorganic chemical reagent, is a key raw material for producing vinyl chloride monomer, the precursor to PVC. It is also widely used in industrial processes such as metallurgy, electroplating, water treatment, and chemical synthesis, serving as an important by-product of the chlor-alkali industry.

Caustic Soda (Sodium Hydroxide), a strongly alkaline corrosive substance, has extremely extensive application scenarios. It can serve as an acid neutralizer, detergent, and precipitating agent. Industries such as papermaking, textiles, water treatment, alumina refining, and petrochemical refining consume it in large quantities. Caustic soda and hydrochloric acid are co-products of the chlor-alkali process, and their outputs are highly bound. If companies coordinate to control prices, it will directly impact the cost side of the entire chlor-alkali industrial chain.

Subsequent impact of the event remains to be observed; industry faces multiple uncertainties

As of now, the 7 companies involved have not issued a unified official response regarding this seizure and search. According to South Korea's antitrust regulations, if price collusion is ultimately confirmed, the companies involved will face heavy fines, and relevant responsible persons may also bear criminal penalties.

In the short term, the case will disturb sentiment in the South Korean domestic petrochemical market. On one hand, during the investigation and evidence collection phase, corporate pricing decisions may tend to be cautious; on the other hand, if penalties or business adjustments follow, it will create variables regarding the domestic supply and export quotations of products such as PVC and plasticizers in South Korea, thereby affecting the chemical trade pattern in the Asia-Pacific region. For downstream small and medium-sized enterprises in construction materials, plastics, and chemical processing, if years of conspiracy to raise prices are confirmed, there is hope that the possibility of subsequent rights protection and claims for the previously inflated procurement costs may be opened.

Subsequently, the prosecutors will complete the organization of physical evidence and the interrogation of companies and relevant personnel, gradually clarifying the timeline of participation in coordination, details of price adjustments, and the entities involved. The progress of the related investigation will continue to receive attention from the chemical industry and the capital market.