This file photo shows Lotte Chemical Corp.’s Daesan factory in Seosan, about 150 kilometers southwest of Seoul. (Image courtesy of Yonhap)
SEOUL, Dec. 24 (Korea Bizwire) – South Korea’s government unveiled a set of measures on December 23 to enhance the competitiveness of its petrochemical industry, which has been grappling with a structural downturn fueled by global oversupply. Industry leaders welcomed the initiative, emphasizing the urgency of swift action to prevent a deeper crisis.
Support for a Core Industry Facing Historic Challenges
Petrochemicals, a pillar of South Korea’s industrial landscape, have been hit hard by plummeting profitability and a supply glut driven by aggressive capacity expansions in China and the Middle East.
The price spread for ethylene, a key profitability indicator, has remained below the breakeven point of $300 per ton since 2022. As a result, major naphtha-cracking center (NCC) operators have endured three consecutive years of operating losses.
The global oversupply is expected to persist through 2028, and prospects for recovery remain dim. The downturn has already forced South Korean petrochemical firms to restructure.
For instance, Lotte Chemical has reduced its reliance on basic chemicals, targeting a portfolio shift by 2030. LG Chem has halted operations at key plants while pivoting to high-value, eco-friendly materials like advanced polyvinyl chloride (PVC) and carbon nanotubes.
Key Policy Initiatives
The government’s plan centers on three pillars: streamlining NCC facilities, bolstering global competitiveness, and fostering a shift toward high-value products. Key highlights include:
- Incentives for Restructuring: The plan encourages facility closures, divestitures, and joint ventures, with potential designations of impacted areas as “industrial crisis response zones” to mitigate local economic fallout.
- Financial Support: The government will provide 3 trillion KRW ($2.3 billion) in policy financing to ease liquidity constraints and support transitions.
- Cost Reductions and R&D: Measures include extending duty exemptions on naphtha imports and increasing investments in high-value material technologies and carbon reduction initiatives.
Officials emphasized that while direct intervention in corporate operations is not feasible, the government will address regulatory gaps to facilitate swift restructuring.
Industry Response
The announcement garnered cautious optimism from industry leaders. Shin Hak-chul, chair of the Korea Petrochemical Industry Association, expressed gratitude for the government’s commitment and pledged to implement the measures effectively.
However, some industry stakeholders noted the plan’s reliance on corporate autonomy and limited government intervention. They highlighted Japan’s more proactive approach, including temporary exemptions from antitrust laws to facilitate industry consolidation.
Broader Implications
Observers view the measures as a positive step but stress the need for rapid implementation to capitalize on a critical “golden time.” With global supply imbalances unlikely to abate soon, resilience and innovation will be key to survival.
The government plans to establish a comprehensive support framework early next year, including independent consulting services to guide restructuring efforts and a coordinated response across ministries.
While industry players acknowledge that the structural downturn cannot be resolved overnight, they remain hopeful that these measures will provide much-needed support to weather the current storm and lay the groundwork for long-term competitiveness.
Ashley Song (ashley@koreabizwire.com)
