'It's a matter of survival now': Petrochemical firms grapple with government crackdown

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'It's a matter of survival now': Petrochemical firms grapple with government crackdown

Published: 20 Aug. 2025, 18:36

Audio report: written by reporters, read by AI

A view of Yeochun NCC, a petrochemical company in the Yeosu Industrial Complex in South Jeolla, which is struggling with financial difficulties [NEWS1]

Korea unveiled a plan Wednesday to shore up its faltering petrochemical industry, linking financial support to voluntary production cuts in naphtha. However, industry insiders questioned whether the measures would be enough, arguing that real restructuring would require tough, government-led intervention rather than leaving firms to make bare-minimum survival choices.

“Voluntary restructuring — at this point, it feels about as realistic as lukewarm iced coffee,” a petrochemical executive said, reacting to the government’s newly unveiled “Petrochemical Industry Revitalization Strategy.”

The core of the plan is to provide tailored support to companies that actively cut back on naphtha production to help alleviate the global supply glut driven by China while excluding firms that try to reap the benefits without participating. In short, the government is leaving restructuring to market players — but with carrots and sticks.

Ten companies signed the voluntary agreement with the government: LG Chem, Lotte Chemical, SK geo centric, Hanwha TotalEnergies, Korea Petrochemical Ind., Hanwha Solutions, DL Chemical, GS Caltex, HD Hyundai Chemical and S-Oil.

Kumho Petrochemical, one of the “Big Four” in the sector alongside LG, Lotte and Hanwha, was not included because it does not operate a naphtha cracking center (NCC).

“The president’s pressure for action forced us to gather in haste,” said a representative from one of the participating companies. “It felt more like a forced agreement than a voluntary one.”

Many in the petrochemical industry are skeptical, arguing that if the issue could have been resolved voluntarily, it would have been already.

White steam rises from the Yeosu National Industrial Complex in Yeosu, South Jeolla, where petrochemical companies are concentrated, on Dec. 7, 2020. [YONHAP]

“It’s a matter of survival now,” said a representative from another firm. “Restructuring varies in direction and intensity, but at this point it’s about whether a company completely shuts down a core business or merges with another. It’s unsettling to be told to make such huge decisions on our own while watching our competitors.”

Although companies face differing situations, the government has essentially set a reduction target for naphtha and expects them to comply.

The industry is broadly divided into upstream, where naphtha is cracked to produce ethylene and propylene, and downstream, where those feedstocks are turned into products like polyethylene, polypropylene and synthetic rubber.

“The circumstances vary significantly depending on whether a company is in upstream or downstream, whether NCC is their core business, whether their parent company owns a refinery, or whether they have sufficient capital,” said a third company official.

Amid this mismatch of interests, three main restructuring scenarios are emerging: vertical integration between refiners and petrochemical firms, shared operation of NCC facilities among petrochemical companies and closure of NCC facilities by individual firms.

Industry sources acknowledge that the problem has festered for too long, and that unless the government steps in decisively, meaningful restructuring will remain out of reach.

Members of the Yeochun NCC branch of the National Chemical, Fiber, and Food Industry Workers' Union hold up a banner reading, ″We deeply appreciate Hanwha Group's trust and support for Yeochun NCC,″ in front of the Hanwha Building in Jung District, central Seoul, on Aug. 12. Yeochun NCC, a joint venture between Hanwha Group and DL Group, recently faced bankruptcy due to the deteriorating petrochemical industry. While Hanwha Group will prevent Yeochun NCC from defaulting even through additional support, Hanwha Solutions approved an additional loan to the company at its board meeting in late July. [YONHAP]

“In a situation where it’s your life or mine, everyone’s hoping the other one dies first,” said a representative for a fourth firm. “If this isn’t a problem that can be solved by simply kicking the deadline to the end of the year, the government needs to wield the knife now — even if it hurts — to break this vicious cycle.”

The government already urged voluntary restructuring last December with its “Plan to Strengthen the Competitiveness of the Petrochemical Industry” (translated), offering a range of incentives.

In response to criticism that the plan merely delays the issue, Deputy Prime Minister and Finance Minister Koo Yun-cheol said, “The industry has been turning a blind eye to the problem.”

“As the government describes it, this is just the first step — setting the rules,” said Lee Duck-hwan, professor emeritus of chemistry at Sogang University. “But even after the first round of restructuring, both the government and industry must continue working to secure future growth engines like high-value-added products.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM KI-HWAN [[email protected]]