South Korea to Unveil Petrochemical Industry Restructuring Plan in December

The South Korean government is preparing a major restructuring plan for its struggling petrochemical industry. The initiative aims to address challenges like oversupply and increasing competition from Chinese rivals by shifting focus from basic chemicals to high-value specialty chemicals. The government hopes this transformation will encourage local companies to invest in profitable products and pursue mergers and acquisitions to enhance competitiveness.

According to "The Korea Economic Daily", South Korea's Ministry of Economy and Finance, Ministry of Trade, Industry, and Energy, Financial Services Commission, and other key agencies are expected to release a series of support measures in December. These measures are designed to help domestic manufacturers navigate a tougher global market and address financial difficulties.

A senior finance official highlighted that the government's strategy includes incentives such as tax breaks and low-interest loans to promote the production of high-margin specialty chemicals like copolyester and acrylonitrile-butadiene-styrene (ABS). These products offer higher profitability compared to basic chemicals like ethylene, a core raw material in the industry.

In the third quarter of 2024, South Korea's four major petrochemical companies—LG Chem, Lotte Chemical, Kumho Petrochemical, and Hanwha Solutions—reported a combined operating loss of 445 billion won ($317.9 million), compared to a 39 billion won profit during the same period last year. Lotte Chemical, one of the country's largest ethylene producers, recorded a loss of 414 billion won. Other domestic players like Yeochun NCC are also facing financial strain.

A key part of the restructuring plan is fostering mergers and acquisitions among petrochemical firms. The government is drafting a new law to simplify corporate restructuring, allowing companies to merge or spin off divisions with just board approval, bypassing the typically lengthy shareholder meeting process. The law will also offer tax incentives, such as deferring income and corporate taxes tied to business transfers.

The government sees these measures as critical to providing companies the flexibility and financial support needed to focus on profitable ventures related to carbon neutrality and supply chain stability.

Additionally, talks are underway to boost R&D funding for specialty chemicals. Industry leaders are calling for fewer regulations and more tax benefits to streamline R&D investments, recognizing that innovation is essential for future growth.

The restructuring measures were initially set to be announced on November 27 during a special meeting chaired by Finance Minister Choo Kyung-ho. However, the announcement has been delayed to allow further coordination among relevant ministries.