Gov’t unveils steps to support ‘voluntary’ restructuring of petrochemical industry

The government will help the ailing petrochemical sector’s “voluntary” restructuring efforts aimed at tackling the industrywide crisis stemming from a global oversupply, the industry ministry said Wednesday.

The road map for restructuring the petrochemical industry is aimed at reducing oversupply, transiting to the production of high-value specialty products, improving the fiscal health of companies and minimizing the impact of the restructuring on regional economies, according to the Ministry of Trade, Industry and Energy.

The government support for the restructuring plan will be provided under three principles: “simultaneous” restructuring of three petrochemical industrial complexes, “sufficient” self-rescue efforts and preparation of a “feasible” business restructuring plan by companies, and the establishment of a “comprehensive” government support package, the ministry explained.

The plan was announced during a meeting of economy-related ministers on strengthening the industrial competitiveness of South Korea that came amid concerns that local petrochemical companies may not survive the ongoing crisis sparked by sluggish global demand and the oversupply of cheap Chinese products.

A recent report by Boston Consulting Group warned that if the current downturn persists, nearly half of South Korean petrochemical firms may not survive the next three years given their weak financial health.

Following the meeting, Industry Minister Kim Jung-kwan also met with officials from the petrochemical industry, where the two sides signed an agreement on government support for companies’ voluntary restructuring efforts to boost the competitiveness of the sector.

For the goal, the petrochemical industry vowed to work toward reducing up to 3.7 million tons of naphtha cracking center capacity and shifting to the production of high-value and eco-friendly products.

Under the agreement, petrochemical firms will draw up and submit a detailed business restructuring plan, including measures to bolster competitiveness and improve the financial structure, by the end of this year, according to the ministry.

Petrochemical companies are widely expected to come up with measures not only to integrate NCC facilities but also to pursue “vertical integration” with oil refiners in order to ride out a prolonged slump in the petrochemical industry.

“Integration among petrochemical firms will not resolve the industry’s fundamental loss-making structure. Integration with refiners will help petrochemical firms purchase naphtha at competitive prices and secure synergies by restructuring redundant facilities,” an industry official said.

At the Daesan Petrochemical Industrial Complex in Seosan, about 100 kilometers southwest of Seoul, Lotte Chemical Corp. and HD Hyundai Chemical have been holding talks since early this year on the “integrated operation” of NCC facilities.

The Daesan complex is one of the country’s three major petrochemical industrial complexes, along with the Yeosu complex, about 320 km south of Seoul, and the Ulsan complex, about 310 km southeast of Seoul.

In the Yeosu complex, which houses No. 2 refiner GS Caltex Corp., LG Chem Ltd. and Lotte Chemical, leading refiner SK Innovation Co. and Korea Petrochemical Ind. Co. (KPIC) have discussed various measures over their NCC facilities since last year, but they have yet to reach a resolution.

SK Innovation has a wholly owned naphtha-cracking subsidiary, SK geo centric Co.

In Yeosu, integration among LG Chem, Lotte Chemical and GS Caltex is also regarded as a possible option as part of the broader restructuring.

In Ulsan, No. 3 refiner S-Oil Corp. is building a 9.26 trillion-won ($6.6 billion) petrochemical plant under the “Shaheen” project with the aim of starting operations in late 2026, raising concerns about oversupply after 2027.

Once the plans are submitted, the ministry said it will review them to devise a support package covering financial aid, tax benefits, incentives for research and development projects, and regulatory reforms.

The government is also considering designating the central city of Seosan, which houses one of the country’s three major petrochemical industrial complexes, as a special zone requiring a preemptive response to an industrial crisis, it added.

The government designated the southwestern city of Yeosu, which also hosts a petrochemical industrial complex, as such a zone in May.

“For the petrochemical industry to survive, bold restructuring is the only path forward,” Kim said in his meeting with petrochemical firms. “But the government will sternly respond to companies who attempt to take a free ride.

“Companies that try to continue business without self-rescue efforts by depending on government support or those who only try to benefit from the planned reduction of other companies’ facilities will not be able to get any help from the government.” (Yonhap)