SEOUL, August 22 (AJP) - Faced with a deep-seated crisis in its petrochemical industry, the South Korean government has set a firm deadline for a major restructuring, a move that is expected to accelerate the vertical integration of refiners and chemical producers.
The government's push for consolidation comes as the sector grapples with years of overexpansion and intense market pressures.
Industry experts say the sector's current woes are not only the result of global oversupply, particularly from China, and weak demand but also of domestic firms' own aggressive capacity expansions.
Many companies continued to build new facilities even as profit margins shrank, creating a glut that now threatens the industry's long-term viability.
South Korea currently operates 10 naphtha crackers (NCCs) — four each in Yeosu and Daesan and two in Ulsan — which are central to producing key chemicals like ethylene and propylene.
With an annual ethylene capacity of about 13 million tons, South Korea ranks fourth globally, trailing only China, the U.S., and Saudi Arabia. This capacity is projected to increase to nearly 14.7 million tons once the S-Oil Shaheen project is completed in late 2026, further exacerbating the oversupply issue.
To combat the crisis, the government has requested a voluntary industry agreement to reduce domestic NCC output by 2.7 to 3.7 million tons, an amount equivalent to up to 25 percent of total capacity. This targeted reduction aims to align production with actual local demand.
Vertical integration has emerged as the most viable path forward.
By merging with refiners, which produce naphtha, chemical manufacturers can significantly lower their production costs while strategically shedding excess capacity.
Discussions are underway for several major deals, including one in Daesan, where Lotte Chemical may transfer its NCC facilities to HD Hyundai Chemical in exchange for cash or other assets from its affiliate, HD Hyundai Oilbank.
At the Yeosu complex, the largest industrial site in South Korea, a large-scale restructuring involving key players like GS Caltex, LG Chem, and Lotte Chemical is now considered almost unavoidable, especially given the government's ambitious reduction targets.
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