As South Korea’s petrochemical sector struggles with a historic downturn, the government is poised to announce new support measures in the coming months after completing a strategic industry consulting project commissioned to address underlying structural challenges, Koreabizwire reports.
The Korea Petrochemical Industry Association has submitted a final report to the Ministry of Trade, Industry and Energy, based on an industry restructuring study done by Boston Consulting Group (BCG).
The analysis emphasizes the urgent need for reform but does not recommend explicit government-led restructuring, raising concerns about whether the recommended actions will be enough to restore long-term competitiveness.
According to the analysis, the Northeast Asian petrochemical market downturn is predicted to last until at least 2030, with a restoration to a more normalized situation not expected until 2035 at the most. The research warns that depending solely on staying power is no longer viable, and that putting off action risks missing a vital window for optimal reorganization.
South Korea’s petrochemical exports are still strongly dependent on China, which accounted for 35% of outbound shipments last year. As China increases domestic production, Korean companies confront declining market share and increased competition from low-cost producers in the United States and the Middle East, notably in high-volume products like polyethylene (PE) and polypropylene (PP).
The paper suggests prioritizing competitiveness in high-margin products and successful enterprises, with a particular emphasis on raw material sourcing, local power generation, and utility integration.
Lowering industrial electricity costs is proposed as a temporary relief option, although implementation may be politically and operationally difficult due to fairness concerns across industries.
The chemical sector used 41,210 GWh of power in 2023, representing for 15.8% of overall industrial consumption, making energy a significant expense, particularly for large businesses.
The paper also discusses potential tax exemptions for research institutions and increased export incentives for high-value green products. However, it expressly prohibits any government-led restructuring plans, such as direct involvement in corporate mergers or factory closures.
Although such possibilities were addressed during the consultation process, including financial and personnel assistance for restructuring enterprises, they were eventually rejected due to the complicated interaction of corporate interests and potential social consequences.
The lack of a government roadmap has elicited various reactions, with opponents citing Japan’s aggressive approach in the 1980s as an example. Back then, Japan restructured its petrochemical sector through temporary regulatory exemptions and joint ventures, including the formation of limited partnerships (LLPs) among key corporations to eliminate excess capacity.
Although the LLC concept was discussed during consultations in Korea, its legal viability under the present Fair Trade Act remains a concern. A government official admitted that regulatory reform would be required to adopt such cooperative organizations domestically.
Despite the policy debate, several Korean companies have already begun to cut operations. For example, Lotte Chemical will close its synthetic rubber subsidiary in Malaysia by the end of 2024 and sell its TPA business in Pakistan earlier this year. LG Chem has shut down multiple production lines for crucial petrochemical inputs such as styrene monomer and alcohol.
Last December, the government issued a limited support package, which included regulatory relief under the Corporate Revitalization Promotion Act and 3 trillion won in policy funding. However, the method was primarily reactive, emphasizing corporate autonomy over centralized control.
The Ministry of Trade, Industry, and Energy is scheduled to unveil follow-up measures in the first half of 2025, according to a consultancy study. It is unclear whether they will involve bolder structural improvements.