Gov’t looks to boost steel, petro industriesThe government unveiled measures Friday that it says will help raise the competitiveness of Korea’s steel and petrochemicals industries, which have been struggling in recent years due to oversupply in the global market.
The measures include various tax cuts and financial aid for incorporating cost-cutting information technology into the production process. The government said it would expand investment in research and development of special materials that could be applied to future products such as drones, electric vehicles and environmentally-friendly chemical products.
“We believe improving the nation’s economy by restructuring industries that are having difficulties is the only way to solve various economic problems that we are facing,” Yoo Il-ho, minister of strategy and finance, said Friday. “It takes time and pain to carry out restructuring, but every part of the industries, including labor, management and creditors, should cooperate to improve Korea’s competitiveness abroad.”
According to the Ministry of Strategy and Finance, the global steel industry is facing oversupply of more than 750 million tons, and the problem is likely to grow.
“Korea is losing in cost competitiveness to the United States, China and countries in the Middle East, so local companies need to reduce cost by improving productivity,” said an official at the ministry. “The government will execute various policies to help companies who reorganize to be prepared in advance for the future global market through help with R&D funds, training programs to create more professionals in the field, and financial aid and tax cuts in general.”
The government singled out thick plates and sheets as two steel products that are oversupplied in Korea, recommending manufacturers cut down the number of production lines and focus on developing new special materials such as advanced high-strength steel.
The Finance Ministry said it would expand funding for research and development and other projects to build such special materials. It hopes to narrow the technology gap between Korea and other developed countries from 1.5 years in 2015 to 0.6 years by 2018.
For petrochemicals, the government has advised companies to cut down on polystyrene and terephthalic acid. As with steel, the government will expand its current research and development budget for petrochemicals as well.
The petrochemicals sector only accounts for 2 percent of all research and development projects in Korea. The government’s goal is to raise that number to 5 percent by 2025 by cooperating with the private sector.
The government’s call for restructuring, though, is not mandatory, so companies can choose not to follow the government’s suggestions or recommendations.
“We will cooperate with companies that are facing oversupply issues to help them restructure pre-emptively [before it is too late],” a Finance Ministry official said.
A senior official from the Ministry of Trade, Industry and Energy added that “those who fail to reorganize their business lines will eventually fall behind the global competition.”
Since the government does not have specific measures or incentives to force companies to reorganize their business lines, many industry insiders believe the plan will have limited impact on the two industries.
“We are already aware of the problem, and the government didn’t come up with specific plans to solve it or make us change,” said an industry insider in petrochemicals.
Another industry insider from steel argued that he was not sure whether restructuring the whole industry will help the competitiveness of every single company in the industry.
Two other industries already undergoing restructuring, shipping and shipbuilding, will have specific plans for their improvement in October, Finance Minister Yoo said.
BY KIM YOUNG-NAM [email@example.com]