Korea’s top oil refiner SK Innovation will scrap its plan to enter into a joint venture with China’s state-run Sinopec Group, citing the slump in the global market, officials said Thursday.

In 2013, the company said it would establish a venture with SSVW, a subsidiary of Sinopec Group, to build a butanediol plant in Chongqing, Sichuan province in China. The two parties had agreed to open a plant with an annual capacity of 200,000 tons through a 680 billion won ($580 million) joint venture.

The plant operation had been scheduled to start last year. However, the construction had been delayed for three years over a rise in the prices of natural gas and the continued slump in the butanediol market.

Butanediol, a material used for producing synthetic fibers, is produced either from natural gas or coal.

Questions have been raised over the price competitiveness of natural gas-butanediol, as natural gas prices have surged while coal-based butanediol has been supplied in large amounts throughout the market.

“The decision was made upon request from Sinopec in the wake of the changed business conditions,” SK Innovation said in a regulatory filing.

“Despite the market condition issues, (the two companies) had looked for many plans to secure competitiveness. As the market price problem persisted for a long time, (we) agreed to withdraw the joint plan,” it added.

SK Innovation said its initial capital of 10 billion won will be partially returned.

The company, however, stressed that the latest decision will not affect other projects with Sinopec.

By Lee Hyun-jeong (rene@heraldcorp.com)