The Yosu petrochemical complex, the largest in South Korea, is set to undergo significant restructuring to address supply overcapacity. Yeocheon NCC and Lotte Chemical will merge their operations to form a new entity, halting the operation of ethylene production facilities with an annual capacity of 1.39 million tons. In this process, companies will invest approximately 800 billion won in self-rescue efforts, while the government will provide over 700 billion won in financial, tax, and research and development support.
The Ministry of Trade, Industry and Energy approved the "Yosu No. 1 Petrochemical Business Restructuring Project" submitted by Yeocheon NCC, Lotte Chemical, Hanwha Solutions, and DL Chemical on July 20, and reported it to the Ministerial Meeting on Industrial Competitiveness on July 22. This marks the second approved petrochemical restructuring case following the Daesan No. 1 project involving HD Hyundai Oilbank, HD Hyundai Chemical, and Lotte Chemical in February.
The core of this restructuring is to consolidate the scattered basic materials and downstream businesses in the Yosu area into a single entity. Lotte Chemical will physically separate its naphtha cracking facility (NCC) and basic materials businesses, including polyethylene (PE) and polypropylene (PP), at the Yosu plant. Hanwha Solutions and DL Chemical will contribute their respective downstream businesses, including PE and adhesives and coatings resins, to the new entity formed by merging with Yeocheon NCC.
During the three-year restructuring period, Yeocheon NCC will suspend operations at two ethylene production facilities, reducing production capacity by 1.39 million tons annually. The production facilities for low-value general products will also be shut down, while the operational efficiency and profitability of the remaining facilities will be improved.
Companies will undertake self-rescue efforts and investments totaling around 800 billion won. Shareholders of Yeocheon NCC, Hanwha Solutions, and DL Chemical, will conduct a capital increase of 272.5 billion won each, totaling 545 billion won, to repay existing debts of Yeocheon NCC. An additional 253.2 billion won will be invested to stabilize the supply chain and implement the restructuring, including building infrastructure and transitioning to high-value products.
The government will activate a support package of over 700 billion won through a joint effort of relevant ministries. Bond financial institutions will provide 450 billion won in new funding and defer repayment obligations to support facility integration and the transition to high-value products. The Korea Trade Insurance Corporation will expand import insurance support worth 200 billion won, offering discounts of up to 30% on import insurance premiums and doubling guarantee limits.
Tax burdens from corporate splits, mergers, and asset transfers will also be reduced. The tax deferral period for asset sales will be extended, and the limit for carrying forward losses will be increased, while acquisition and registration taxes will be reduced by up to 100%. Tariffs on imported naphtha and crude oil for naphtha production will remain exempt until the end of this year. The government will also support the simplification of licensing procedures and relax requirements for employment retention subsidies and retraining for current employees.
Among the R&D projects submitted by approved restructuring companies, three essential long-term promising projects will receive support starting this year. Additionally, large-scale R&D projects aimed at transitioning to high-value and eco-friendly products will be promoted, encouraging new investments in these areas.
The government anticipates that the restructuring will alleviate supply overcapacity and enhance production efficiency and profitability. The new entity plans to shift its business structure towards high-value and eco-friendly products, such as low-density polyethylene (LDPE) for medical use and polyolefin elastomers (POE) used in medical, food, and hygiene adhesive applications.
Furthermore, the Ministry of Trade, Industry and Energy expects that once the integrated operations and self-rescue efforts are implemented, the operating profit, which has been in the red, will turn to black after the restructuring period, significantly reducing the debt ratio.
The government plans to swiftly advance discussions on restructuring in the Ulsan region, following Daesan and Yosu. A comprehensive plan for the chemical industry, focusing on stabilizing the petrochemical supply chain, transitioning to high-value and eco-friendly products, and supporting local economies and employment, will be developed in the second half of this year.
Moon Shin-hak, Deputy Minister of the Ministry of Trade, Industry and Energy, stated, "The proactive and voluntary restructuring, which is a path never taken before, will serve as an important milestone in industrial policy. I express my gratitude to all companies that have pushed forward with the restructuring project despite challenging domestic and international conditions. The government will support the implementation of the restructuring plan with a sense of responsibility." He added, "For the restructuring of the petrochemical industry to succeed, it is necessary for all industrial complexes to participate without free-riding. We will do our best to ensure that our petrochemical industry can regain competitiveness and make a comeback by swiftly advancing discussions on restructuring in the Ulsan region, following Daesan and Yosu."
* This article has been translated by AI.
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