Faced with flagging demand for gasoline and other petroleum products in their respective home markets, the two giants will invest a total of around 120 billion yen [US$1.5 billion] in a pair of new production ventures in South Korea. Japan’s neighbor makes an attractive export base, with low electricity costs, a weak currency, and a top effective corporate tax of 24%, compared with about 40% in Japan.

A formal agreement on the business partnerships is expected as early as Friday. The new petrochemicals and lubricants factories will be built on the grounds of the South Korean group’s refinery complex in the southeastern city of Ulsan.

The companies reportedly will form two joint ventures:

• In petrochemicals, the JX Holdings Inc. unit will form a 50-50 venture with SK Global Chemical Co., a subsidiary of SK Innovation. Production of paraxylene, an oil-based raw material for synthetic fibers and plastics, is expected to begin around 2014. The new facility reportedly will have an annual output capacity of about 1 million tons, making it one of the biggest in the world.

• JX Energy will also form a joint venture with SK Innovation’s lubricants subsidiary, holding a 30% stake. The venture will begin production in 2012 and have an output capacity of about 1.3 million kiloliters a year, supplying raw lubricants for final production in Japan, South Korea and elsewhere in Asia.

In its report, the Nikkei noted that market for petroleum products in Japan has been in decline since fiscal 2003. Among other Japanese refiners, Cosmo Oil Co. and Idemitsu Kosan Co. are also branching out further into petrochemicals through foreign ventures.