South Korea鈥檚 petrochemical giants agree to major capacity cuts and restructuring, with government urging swift reforms amid Chinese competition and oversupply.
South Korea鈥檚 petrochemical industry is preparing for sweeping restructuring measures after the government called for urgent and rigorous reforms to prevent further collapse of the sector. According to KED Global, the nation鈥檚 10 largest petrochemical producers have agreed to implement drastic capacity cuts, including shutting down up to 25% of their naphtha-cracking facilities. The decision follows months of financial struggles in the industry, worsened by oversupply and intensifying competition from China.
During a meeting attended by Industry Minister Kim Jung-kwan, executives of the top firms signed an agreement committing to capacity reduction. As per the ministry鈥檚 statement, the companies will collectively cut between 2.7 million and 3.7 million metric tons of annual naphtha-cracking output, from the country鈥檚 total capacity of 14.7 million tons. Detailed restructuring plans are to be submitted before the end of the year, though Finance Minister Koo Yoon-cheol urged companies to accelerate the process, warning against delays.
Koo emphasized that the only way to restore competitiveness is to address chronic oversupply. He called on companies and shareholders to present binding restructuring proposals as early as next month. Drawing a parallel with South Korea鈥檚 shipbuilding sector, which revived itself through restructuring, he stressed that petrochemical producers must take similar steps.
The government pledged to support serious restructuring efforts through regulatory relief, financial aid, and tax incentives. However, Koo made it clear that 鈥渇ree riders鈥� expecting state support without undertaking meaningful reform would not be tolerated.
South Korea is one of the largest global importers of naphtha, which is processed into chemicals essential for producing plastics used across automobiles, electronics, textiles, and construction. But Korean petrochemical firms have suffered heavily due to China鈥檚 aggressive expansion in petrochemical capacity. With Chinese producers offering generic chemical products at significantly lower costs, South Korean companies are facing mounting losses. Several media reports warned that if the downturn continues, nearly half of the country鈥檚 petrochemical companies could collapse within three years due to fragile financial conditions.
The government outlined three primary goals for restructuring: reducing overcapacity, shifting toward high-value specialty chemical production, and improving financial stability while minimizing social and economic fallout. Plans are underway to restructure major complexes in Yeosu, Daesan, and Ulsan simultaneously, with comprehensive support packages to cushion local economies. Authorities are even considering designating Seosan, a major petrochemical hub, as an 鈥渋ndustrial crisis zone鈥� to make affected communities eligible for subsidies and loans.
Large-scale mergers and tie-ups now appear inevitable. Media reports indicate that Lotte Chemical Corp. and HD Hyundai Co. are already exploring a merger of their Daesan naphtha-cracking centers, while SK Innovation Co. and Korea Petrochemical Ind. Co. are discussing similar facility integrations in Ulsan. In Yeosu, where seven crackers operate with only one refinery, industry watchers expect GS Caltex, LG Chem, and Lotte Chemical to pursue joint ventures.
Pressure intensified after Yeochun NCC Co. (YNCC) suspended operations at its third plant this month amid severe liquidity problems. A permanent shutdown remains possible, though shareholder disagreements between DL Chemical Co. and Hanwha Solutions Corp. may complicate matters. Meanwhile, S-Oil Corp.鈥檚 ongoing Shaheen project, expected to worsen oversupply after 2027, further underlines the urgency for consolidation and reform.
The restructuring marks a turning point for South Korea鈥檚 petrochemical sector, which now faces a decisive test of survival and long-term competitiveness.
