New administration hits the gas on revival of Korea's struggling petrochemical industry

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New administration hits the gas on revival of Korea's struggling petrochemical industry

Published: 19 Jun. 2025, 18:13 Updated: 19 Jun. 2025, 20:15

Audio report: written by reporters, read by AI

A view of the Daesan Petrochemical Complex in South Chungcheong, home to major petrochemical firms including LG Chem, Lotte Chemical and HD Hyundai Chemical [YONHAP]

President Lee Jae Myung's government is set to resume the previous administration's initiative to restructure Korea's struggling petrochemical industry.

The State Affairs Planning Committee, effectively functioning as a transition team, received a comprehensive briefing from the Ministry of Trade, Industry and Energy on Thursday, signaling the new administration's intent to accelerate reform efforts.

Years of oversupply from China and sluggish global demand have left Korea’s petrochemical sector in a prolonged downturn. Recently, heightened geopolitical tensions — including the Israel-Iran conflict — have added volatility to international oil prices, further complicating the industry’s outlook.

Samil PwC, in a report on Korea's petrochemicals sector released last month, urged the government to take decisive action.

“Now is the time for government-led restructuring with real execution power,” the report concluded.

President Lee echoed this stance during his campaign, pledging to support industrial transformation at a national level. The administration is expected to use a “carrot and stick” approach — offering incentives to companies that actively participate in restructuring while withholding support and increasing regulatory scrutiny for those that resist.

Lee Han-joo, chairman of the State Affairs Planning Committee, speaks during a briefing by the Ministry of Trade, Industry and Energy under the second economic subcommittee at the Government Sejong Convention Center on June 19. [YONHAP]

Legislation backing this initiative is already underway. On June 11, Rep. Ju Cheol-hyeon of the Democratic Party proposed a special bill aimed at strengthening the competitiveness of the petrochemical sector.

The proposed law outlines a comprehensive framework that includes tax benefits for mergers, spinoffs, facility downsizing and research and development efforts; government subsidies for decommissioning outdated facilities and investing in new equipment; and electricity rate discounts or compensation.

It also outlines streamlined permitting for facility expansion or closures, environmental regulation exemptions, antitrust exemptions for companies coordinating output reductions and utilization rates and government-led industrial restructuring.

An executive at a domestic petrochemical company, who requested anonymity, called the bill “a well-constructed blueprint for industrywide reform” while acknowledging that “there could be controversy over preferential treatment for large conglomerates.”

Several companies are already taking independent steps. Lotte Chemical and HD Hyundai Chemical are in talks to consolidate their naphtha cracking operations in Daesan, South Chungcheong, in an effort to reduce redundancies.

LG Chem is reportedly looking to sell its stake in its second naphtha cracking center in Yeosu, South Jeolla. Last Friday, the company also announced the sale of its water treatment business — a unit nurtured for over more than a decade — to Glenwood Private Equity for 1.4 trillion won ($1.01 billion).

“Optimizing investment and improving financial structure through facility rationalization is a step in the right direction,” said Kang Dong-jin, an analyst at Hyundai Motor Securities. “But tangible effects will take time to materialize.”

Hyundai Engineering & Construction announced on March 27 that it successfully installed a propylene distillation tower at the site of Aramco's Shaheen Project in Ulsan. The photo shows the tower being lifted by a crawler crane. [HYUNDAI E&C]

Petrochemicals remain a cornerstone of Korea’s industrial base, despite lacking the cutting-edge appeal of chips or EV batteries. The industry is capital-intensive and requires skilled labor, making recovery from collapse particularly difficult. Experts argue that its relevance to national economic security justifies direct state intervention if the private sector cannot lead effectively.

"We should learn from Japan’s case, where the government consistently pursued petrochemical restructuring policies from the 1970s up until now, phasing out commodity-grade products and guiding the industry toward high-value-added products," said Kim Seung-churl, principal researcher at Samil PwC.

The previous Yoon Suk Yeol administration had unveiled a broad outline to revitalize the petrochemical sector last December, with plans to release detailed follow-up measures in the first half of this year. But those efforts stalled after it entered a lame-duck phase marked by the president's impeachment that concluded with a snap election.

Now, with the baton passed, President Lee’s administration is expected to announce its own road map in the second half of this year.

“The success of this initiative will depend on striking a delicate balance — government leadership that still allows market forces to operate,” said Lee Duck-hwan, professor emeritus of chemistry at Sogang University.

“The first step is removing regulatory shackles. We must view this not through the lens of short-term profits but as a means of securing long-term strategic assets.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM KI-HWAN [[email protected]]