Capacity Cuts Exceed 3 Million Tons! South Korea's 10 Petrochemical Companies Sign Business Restructuring Agreement

On August 20, ten major South Korean petrochemical companies signed an agreement on business restructuring, including a significant reduction in petrochemical production capacity.

According to Yonhap News Agency, Korea's Deputy Prime Minister and Minister of Economy and Finance, Koo Yun-cheol, chaired a ministerial meeting themed around the petrochemical industry on the 20th titled "Meeting of Relevant Ministers for Enhancing Industrial Competitiveness," taking decisive action on the petrochemical sector, which faces crisis due to global oversupply and weakening competitiveness.

Koo stated that signs of global oversupply in the petrochemical industry are evident, yet Korean firms continue expanding capacity and have even missed opportunities to create high-value-added products, leading to mounting difficulties. Only by cutting excess capacity and fundamentally improving competitiveness can the industry overcome this crisis.

Koo urged the industry to proactively and swiftly develop concrete restructuring plans, promising that the government would not stand idly by but fulfill its responsibilities.

Separately, according to South Korea’s JoongAng Ilbo, the business restructuring agreement signed by the ten large petrochemical companies commits them to reducing naphtha cracker (NCC) capacity by 3.7 million tons—equivalent to 25% of South Korea’s total capacity of 14.7 million tons.

The South Korean government has outlined three main directions for structural adjustment in the petrochemical sector: reducing excess capacity while shifting toward higher-value-added products, improving corporate financial health, and minimizing impacts on the economy and employment.

The government requires the ten companies to submit detailed plans by year-end. South Korea has clearly stated the principle of “self-help first, then government support.” This means that if the industry takes initiative in cutting production, pursuing mergers and acquisitions, and integrating facilities, the government will support these efforts through deregulation, fiscal measures, and tax policies.

In recent years, due to continuous capacity expansion causing oversupply, profit margins have sharply declined, placing South Korea’s petrochemical industry in its most severe survival crisis in years.

For example, Yeosu Naphtha Cracker Center received 2 trillion won (approximately 5.2 RMB per 1,000 won) from two major shareholders, Hanwha Group and DL Group, in March this year, but less than half a year later requested additional aid of 3 trillion won. Due to overreliance on stable ethylene production, the company has incurred losses every year since 2022, accumulating losses totaling 8.2 trillion won.

This crisis is not isolated. In Ulsan, South Korea’s industrial hub for petrochemicals, operating rates have dropped from 87% in 2021 to 78.5% last year, and further down to around 60% this year.

A report released by Boston Consulting Group (BCG) warns that if the downturn in the petrochemical industry continues, half of South Korea’s petrochemical companies will be unable to sustain operations within three years. To save the entire industry, South Korea must reduce domestic capacity by 24%.