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Korean government plans petrochemical industry restructuring for growth

Published: 21 Aug. 2025, 00:02

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

The Korean government has unveiled a plan to restructure the nation’s petrochemical industry, which has been thrown into crisis by a global supply glut. It signed a business restructuring agreement with 10 major petrochemical companies, requiring them to submit detailed plans by the end of the year to cut up to 3.7 million tons of naphtha cracking center (NCC) capacity. The reduction would amount to 18 to 25 percent of the nation’s total production capacity of 14.7 million tons.

The government made clear its principle of “self-rescue efforts first, government support later.” That means if the industry takes the initiative to reduce output, pursue mergers and acquisitions and consolidate facilities, the government will back the effort with deregulation and financial and tax support. While the state will not broker a “big deal,” it also made clear that free-riding will not be tolerated.

It is a relief that the government and industry finally set a course, but the restructuring comes far too late. Japan and Europe long ago scaled back capacity and shifted to high-value-added products to improve their industrial base. In contrast, Korean companies clung to general commodity products and were swept up in a wave of Chinese oversupply, leading to mounting losses. Last December, the government urged companies to voluntarily restructure, but wary competitors waited each other out, and conditions only worsened. Yeochun NCC was pushed to the brink of default.

A Boston Consulting Group analysis commissioned by the government is sobering. If the slump in petrochemicals persists, half Korea’s companies will not be sustainable in three years, it warned. To preserve the industry at all, Korea must reduce domestic capacity by 24 percent. Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-cheol underscored the urgency, saying the industry must brace itself with a “life-or-death resolve.”

Restructuring petrochemicals is not the sector’s challenge alone. Korea’s industrial base as a whole is stagnating under the pressure of fast-chasing competitors. According to the Korea Chamber of Commerce and Industry, Korea’s top 10 companies and top 10 export items have barely changed between 2005 and 2025 — only two in each list shifted. By contrast, in the United States, nine out of the top 10 companies changed in that span, with Nvidia and Apple replacing old names to lead the artificial intelligence era. Korea’s industrial structure has been stuck while the world races ahead.

Despite its strengths in semiconductors and shipbuilding, Korea’s industrial framework could tip into crisis if it fails to find new growth engines. The government cannot micromanage corporate restructuring, but it must offer a broader vision of industrial policy as part of a national growth strategy. It should provide incentives for restructuring through deregulation and financial support while acting as a command center to mediate the inevitable conflicts the process will spark. The longer structural reform is delayed, the higher the costs Korea will incur.

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.