South Korean Government Pushes for Petrochemical Industry Restructuring to Aid Transformation to High-Value Chemical Products

In recent years, South Korea's petrochemical industry has faced significant challenges, including fierce competition from Chinese rivals and market oversupply. In this context, the South Korean government is actively taking steps to formulate a major restructuring plan aimed at helping the petrochemical industry overcome difficulties and regain vitality.

According to the Korea Economic Daily, major agencies such as the Ministry of Economy and Finance, the Ministry of Trade, Industry and Energy, and the Financial Services Commission plan to announce a series of measures to support the petrochemical industry in December. These measures aim to address the challenges faced by domestic manufacturers and help them better adapt to the increasingly severe global market environment. One of the government's strategic focuses is to promote mergers and acquisitions among petrochemical companies. The government plans to guide companies to shift their focus from basic chemicals to high-value specialty chemicals to revitalize the entire industry and encourage local companies to invest in profitable products. A senior official from the Ministry of Finance emphasized that the government will provide various incentives such as tax breaks and low-interest loans to encourage petrochemical companies to transition to producing high-value specialty chemicals like copolyester and acrylonitrile-butadiene-styrene (ABS), which have higher profit margins than basic chemicals like ethylene.

On the other hand, to facilitate mergers among petrochemical companies, the South Korean government is studying the formulation of a new law. This law would allow companies to conduct mergers or spin-offs with just board approval, without the need for time-consuming and complex shareholder meetings. Additionally, tax relief policies such as deferring income tax and corporate tax related to business transfer transactions will be provided to create favorable conditions for struggling companies to consolidate or divest unprofitable assets, thus enhancing competitiveness.

Currently, many petrochemical companies in South Korea are facing severe financial difficulties. In the third quarter of 2024, the combined operating loss of South Korea's four major petrochemical companies—LG Chem, Lotte Chemical, Kumho Petrochemical, and Hanwha Solutions—reached 445 billion KRW (approximately 317.9 million USD), contrasting sharply with an operating profit of 39 billion KRW in the same period last year. Notably, Lotte Chemical, one of the main ethylene producers, incurred a loss of up to 414 billion KRW. Local companies like YEOCHUN NCC and others also failed to escape this trend.

Furthermore, the South Korean government is discussing additional support for R&D in specialty chemicals. Given the importance of innovation for future growth in the petrochemical industry, industry insiders are calling for deregulation and tax incentives to simplify the R&D investment process.
The restructuring measures originally scheduled for announcement on November 27 were delayed due to the need for further coordination among relevant ministries. Nevertheless, the South Korean government firmly believes that these measures will provide the necessary flexibility and financial incentives for petrochemical companies to engage in profitable businesses related to carbon neutrality and stable supply chains, helping the petrochemical industry achieve transformation and upgrade amid intense market competition.

Recently, SK Innovation and SK E&S announced their decision to merge, evolving into a comprehensive energy company covering traditional energy (such as oil and LNG) and future energy (including renewable energy, hydrogen, SMR, etc.), as well as the battery and ESS sectors. After the merger, the new company's total assets will reach 100 trillion KRW, with annual sales projected at 88 trillion KRW.