South Korean media: "30-40% of costs in South Korea are electricity bills" ... companies are moving to Uzbekistan and Malaysia

¬ ["Electricity shock" causing industrial stagnation] Electricity costs have led to a "de-Korea trend"

"Please be sure to protect the pillars of local high-tech industries."

Last October, in the conference room of SK Nexis headquarters within the third industrial park in Jeonju City, Jeollabuk-do, Mayor Lee Haksu met with company executives and had a discussion. However, the executives sitting across from Mayor Lee looked serious. As the largest copper foil (Copper Foil) company in South Korea, SK Nexis has recently set up new production lines in overseas countries such as Malaysia and Poland, which are not South Korea. But when it heard that some of Jeonju's production facilities would also be transferred to Uzbekistan, Mayor Lee came forward to try to retain them.

SK Nexis Jeonju factory is the only factory of the company domestically, and has always consumed half of Jeonju City's total electricity. It is actually the only major company in Jeonju City that employs hundreds of employees. However, the company could not escape the impact of the "electricity bomb." The electrolytic copper foil industry is an equipment industry that requires a large amount of electricity in the electroplating process. To draw thin and long copper foil with a thickness one-thirtieth of a hair, it is necessary to supply high voltage electricity stably 24 hours a day. This is why the electrolytic copper foil industry says "electricity is raw material." With the surge in industrial electricity prices, SK Nexis alone pays more than 5 billion won in electricity bills per month, and electricity costs have accounted for more than 30% of total production costs.

A representative of SK Nexis said: "The reality is that due to the sharp rise in industrial electricity prices, the burden is too heavy compared to overseas, making domestic production increasingly difficult." Due to the low-price attacks by Chinese companies and global oversupply, it is difficult for South Korea to withstand the impact of rising labor and electricity costs. In the long term, they plan to transform the existing production lines in the Jeonju factory into a "mother factory" based on R&D.

"The reason for operating a factory in South Korea has disappeared"

The offshoring (transferring production bases overseas) caused by electricity prices is not just a problem for specific companies. Electricity price is a key factor in determining where companies locate their factories. Especially in industries that consume a lot of electricity such as copper foil, glass, and polycrystalline silicon, electricity costs account for 30%-40% of costs. The "de-Korea trend" triggered by electricity prices is already spreading.

OCI Holding, which produces polycrystalline silicon for solar power, has acquired a local factory in Malaysia, laying the foundation for building a "second base" to replace South Korea. In the core process of polycrystalline silicon manufacturing, metal wires need to be heated to hundreds of degrees Celsius and coated with high-purity gas. Maintaining the high temperature of the wire requires a large amount of electricity. An OCI Holding official said: "Electricity accounts for 40% of our costs, and electricity in Malaysia is about one-third of that in South Korea. Therefore, we have also signed a 10-year contract with a local power company to directly purchase electricity." In July last year, the company invested about 60 billion won (about 290 million yuan) to take the first step toward operating a polycrystalline silicon production base for semiconductors starting in 2029.

The situation in the glass industry is no different. The process of melting raw sand is a typical high-energy consumption process. KCC Glass produced 8.1 million tons of glass last year, with electricity expenses reaching 69.3 billion won (about 330 million yuan). Compared to two years ago, the output decreased by 8%, but electricity costs increased by 56%.

Ultimately, in 2023, domestic glass companies in South Korea built a factory for the first time overseas (Indonesia) to start producing flat glass. This was the first production line built after transferring part of the idle equipment of one of the two domestic flat glass production plants - the Ryangju plant - to Indonesia. A representative of KCC Glass said: "The local electricity level is one-third of that in South Korea, so investing locally is inevitable. Once the first set of equipment runs smoothly, we plan to build new factories in Southeast Asia and Oceania."

Copper foil company Lotte Energy Materials has moved its production base to Malaysia, where electricity prices are about 40% lower than in South Korea, and is currently operating. Hyundai Steel decided to build an electric furnace steel plant in Louisiana, USA, aiming to start commercial production in 2029. This decision was mainly because the electricity price there is about 34% lower than in South Korea.

Industrial electricity is more expensive than residential electricity

Experts point out that South Korea's distorted rate structure is pushing companies to the edge. Usually, to ensure corporate competitiveness, countries set industrial electricity rates lower than residential electricity rates. South Korea used to be one of those countries where industrial electricity rates were lower than residential electricity rates. However, over the past three and a half years, only industrial electricity rates have risen sharply, so since 2023, industrial electricity rates have exceeded residential electricity rates. According to data from Korea Electric Power Corporation, as of this first half of the year, the industrial electricity rate is 179.23 won per kilowatt-hour (approximately 0.85 yuan), while the residential electricity rate is 155.52 won (approximately 0.74 yuan).

Compared to South Korea, countries with inherently expensive industrial electricity mostly belong to regions with a high proportion of renewable energy, but even so, these countries' industrial electricity rates are mostly less than 90% of residential electricity rates. This means that South Korea is one of the few countries where industrial electricity rates are gradually exceeding residential electricity rates.

A professor in the energy field said: "It is rare to see a country like South Korea where industrial electricity rates are higher than residential electricity rates. The foundation of industrial competitiveness itself is rapidly being weakened, and the wave of offshoring by enterprises may become an irreversible reality."

Source: Chosun Ilbo

Original: toutiao.com/article/1852231804898315/

Statement: This article represents the views of the author himself.