Forced to "cut"! South Korean Petrochemical Giants Forced to Cut Production by 25%

South Korea's petrochemical industry is undergoing an unprecedented reshuffle. Faced with global overcapacity and a sluggish market, the South Korean government has finally pressed the "restructuring button." On the afternoon of the 20th, the Ministry of Trade, Industry and Energy and 10 major petrochemical companies held a "Signing Ceremony for the Voluntary Agreement on Petrochemical Industry Revitalization" at the Korea Chamber of Commerce and Industry in Seoul. LG Chem, Lotte Chemical, SK Geocentric, Hanwha Total Petrochemical, Korea Petrochemical, Hanwha Solutions, DL Chemical, GS Caltex, HD Hyundai, and S-Oil all attended and signed the agreement. Under the latest policy, these companies must submit restructuring plans by the end of this year and reduce naphtha cracking center (NCC) capacity by up to 3.7 million tons, equivalent to 18% to 25% of the country's total capacity, or almost a quarter.

This means there's no room for the industry to wait and see. Who will shut down outdated production lines first, who will be the first to transition to high-value-added products, and who will revitalize through mergers and acquisitions? The future landscape will undergo fundamental changes this year. Industry insiders frankly stated that previously, everyone fancied a government bailout, but now that the scale and timetable for the cuts have been laid out, companies have no choice but to bite the bullet and take action.

The South Korean government's restructuring plan clearly stipulates the principle of "self-rescue first, support later." Companies must first propose practical and feasible self-rescue measures and restructuring plans before the government will provide supporting support. This includes not only fiscal and tax incentives but also safeguards for the stability of the financial system. South Korea's financial sector is currently preparing a creditor agreement, with plans to sign it as early as this month. As long as companies submit qualified restructuring plans, banks will provide extensions and deferred repayments to prevent the concentrated exposure of 30 trillion won in debt risks.

However, implementation is not easy. The game of scramble continues over which company will halt production first and who will suffer the greatest losses. In particular, the consolidation and closure of the three major petrochemical industrial complexes in Ulsan, Yeosu, and Daesan will inevitably impact the local economy and employment. While emphasizing industrial competitiveness, the government must also play the role of "mediator" to balance the interests of all parties.

Unlike Japanese and European companies, which proactively cut production and shifted to high-value-added chemicals to strengthen their competitiveness, South Korean companies have long relied too heavily on low-value-added general-purpose products, leading to continued losses amidst the impact of oversupply in China. The Boston Consulting Group warns that if the current model persists, half of South Korea's petrochemical companies will face a survival crisis within three years. As Deputy Prime Minister Koo Yun-chul put it, this is undoubtedly a "battle of survival."

In fact, the petrochemical industry's plight is merely a microcosm of South Korea's manufacturing plight. Between 2005 and 2025, South Korea's top ten companies and export commodities remained virtually unchanged, while the US rankings were reshaped by AI and high-tech companies during the same period. While South Korea still has strengths in semiconductors and shipbuilding, its overall industrial structure is aging, and new growth engines have yet to emerge. If this petrochemical restructuring fails to serve as an opportunity for industrial upgrading, South Korean manufacturing may fall into deeper stagnation.

Thus, this restructuring is not only intended to alleviate the industry crisis caused by global oversupply, but also a stress test of the industrial structure. The 3.7 million tons of capacity reduction is just the beginning; the real challenge lies in seizing this opportunity to complete the transformation. If reforms continue to be delayed, the price South Korea pays may become increasingly high.