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Petrochemical firms ordered to slash production, show 'self-help efforts'

Published: 20 Aug. 2025, 18:22 Updated: 20 Aug. 2025, 21:28

Deputy Prime Minister Koo Yun-cheol speaks at a meeting regarding an overhaul of the petrochemical industry at the government complex in Jongno District, central Seoul, on Aug. 20. [NEWS1]

The government will help those who help themselves as the country's petrochemical industry struggles amid falling global prices and Chinese oversupply.

The government ordered petrochemical companies on Wednesday to slash production capacity and present detailed restructuring plans by the end of the year, warning that those unwilling to make sacrifices would be denied state support in what may be the country’s most forceful attempt to confront a beaten-down industry.

Deputy Prime Minister Koo Yun-cheol told industry leaders in a meeting held Wednesday that they must “cut excess facilities and fundamentally strengthen competitiveness” before the government provides any relief. President Lee Jae Myung had ordered measures to tackle the crisis in the petrochemical sector on Thursday, Aug. 14.

The government outlined three main directions for restructuring: reducing excess production capacity and shifting toward higher value-added products, securing financial stability, and minimizing the impact on economies and jobs.

“Companies and major shareholders must present binding restructuring and competitiveness plans quickly, based on painful self-help efforts,” said Koo.

The government’s reduction target for naphtha cracking centers is between 2.7 million tons and 3.7 million tons, or 18 percent to 25 percent of the country’s total capacity of 14.7 million tons including ongoing expansions. Ten petrochemical companies signed a voluntary business restructuring agreement with the Ministry of Trade, Industry and Energy on Wednesday and committed to presenting concrete reduction plans by the end of the year.

Deputy Prime Minister Koo Yun-cheol speaks at a meeting with leading figures from the petrochemical industry at the government complex in Jongno District, central Seoul, on Aug. 20. [NEWS1]

The maximum cut of 3.7 million tons came from the findings by Boston Consulting Group (BCG), which has been hired by the private sector to make an analysis of the industry landscape. Industry players have agreed to the overall reduction target, according to the government. According to BCG, half Korea’s petrochemical companies could go bankrupt within three years as companies now lose money the more they produce due to oversupply from China that is driving down ethylene prices.

The government also underscored the need for shareholders to step up to ensure financial stability.

“Companies must secure enough financial soundness to withstand oversupply, and sufficient self-rescue efforts by firms and their major shareholders are essential,” said Minister of Trade, Industry and Energy Kim Jung-kwan.

Yeocheon NCC recently faced the risk of default after DL Holdings, which owns half its shares, refused to provide financial support.

The government did not announce concrete support measures, drawing some criticism that Wednesday's announcement only amounted to an empty plan. Officials explained that offering assistance too early could delay restructuring. Instead, once companies submit restructuring plans, the government plans to roll out a package including financing, tax incentives, research and development and regulatory easing.

“The extent of self-rescue efforts will differ by company, so support will be tailored accordingly,” said a spokesperson for the ministry. “That way, companies will be pushed to do more themselves.”

Kim Jung-kwan, Minister of Trade, Industry and Energy, speaks at a meeting with the local petrochemical industry held at the Korea Chamber of Commerce and Industry (KCCI) building in Jung District, central Seoul, on Aug. 20. [NEWS1]

Financial authorities will meet with heads of the five major commercial banks on Thursday to discuss responses such as loan maturity extensions, interest payment deferrals, and new credit lines. The financial sector’s exposure to major petrochemical companies is around 30 trillion won ($21 billion), about half of which is bank loans.

“We will explain the restructuring plan to the banks and ask for their cooperation,” said a Financial Services Commission official. “Only when major shareholders make self-help efforts can financial institutions consider extending maturities and other support.”

Still, restructuring is expected to be painful and drawn out. Despite repeated calls from the government last year, little progress has been made.

“Each company’s main business structure and facilities differ, so the government cannot unilaterally impose solutions,” said Lee Duck-hwan, professor emeritus of chemistry at Sogang University. “As a key national industry, the government must send a clear signal by lifting regulations and providing active support to accelerate restructuring.”

The restructuring process also carries the risk of large-scale layoffs. Although both the government and industries have pledged to minimize the impact on economies and jobs, in places like South Jeolla's Yeosu, which depends heavily on petrochemicals, job creation will be difficult. The government designated Yeosu a pre-emptive “industrial crisis response zone” and is considering adding Seosan, South Chungcheong, to the list.

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 AHN HYO-SEONG [[email protected]]