Announced Tuesday, the agreement gives Toyota Tsusho a 25 percent stake in LG Chem’s cathode materials plant in Gumi. Analysts say this will help restructure the joint venture in a way that allows the facility to comply with the United States Inflation Reduction Act and secure access to the North American battery market.
The move highlights the growing urgency for South Korea’s petrochemical companies, which face structural oversupply, declining demand, and eroding competitiveness.
“We used to export heavily to China, but now they’ve built extensive facilities and achieved self-sufficiency,” Kim Byung-jun, a professor at Korea Polytechnic University’s Petrochemical Process Technology Institute, told AJP. “They’re producing more than they consume domestically and dumping the surplus cheaply into our market, creating a domino effect throughout our supply chains.”
Kim argued that survival depends on a move toward high-value products.
The crisis has prompted comparisons to the shipbuilding industry’s painful but ultimately successful restructuring two decades ago, when Korean yards shifted away from low-margin vessel production and focused on high-value segments such as liquefied natural gas carriers. That pivot enabled South Korea to maintain global leadership, securing roughly 80 percent of the LNG carrier market today.
Analysts say the pace of transformation is likely to accelerate as environmental regulations tighten and carbon border taxes take effect. They say companies that successfully reposition themselves in specialty and eco-friendly materials may emerge stronger, while those clinging to traditional commodity products risk being priced out by cheaper rivals abroad.
LG Chem’s pivot toward battery materials illustrates the kind of specialization analysts see as essential.
The company has secured contracts worth more than 30 trillion won with automakers including Toyota and General Motors to provide advanced materials for electric vehicles. Its Gumi plant, with annual production capacity of 66,000 tons, embodies the transition from commodity chemicals to next-generation materials.
“Korea once led in hydrocracking technologies, but China and the Middle East have caught up,” Professor Kim said. “Now we must pivot to eco-friendly strategies like hydrogen, carbon capture and storage, and sustainable product development to prepare for tightening carbon regulations.”
Kim added that industry consolidation may be unavoidable.
“In Ulsan and Yeosu, multiple companies make the same products, which worked when export markets were abundant,” Kim said. “Now we need coordination — possibly mergers — to reduce duplication and strengthen competitiveness.”
According to a May report by Samil PwC Management Consulting, the combined operating profit margins of South Korea’s 10 largest petrochemical companies fell from 12.5 percent in 2021 to minus 0.9 percent in 2023 and minus 1.8 percent in 2024 — a 14.3 percentage point drop in just three years.
Capacity utilization at major naphtha cracking complexes run by Yeochun NCC, Lotte Chemical, SKC and Hyosung Chemical slipped to 77 percent in 2024, down from 86 percent in 2021.
Losses have mounted across the sector.
Lotte Chemical reported an 894.1 billion won operating loss last year, after a 762.6 billion won deficit in 2022.
LG Chem’s petrochemical division posted a 135.8 billion won loss, while SKC lost 276.8 billion won. Only Kumho Petrochemical, bolstered by its strength in synthetic rubber, remained in the black, with a 3.8 percent operating margin.
reporter
Candice Kim
candicekim1121@ajupress.com
Copyright ⓒ Aju Press All rights reserved.
![[K-Tech] Ground broken for South Koreas first renewable biofuel plant](https://image.ajunews.com/content/image/2025/08/04/20250804150029482020_278_163.jpg)
