INSIGHT: South Korea broadens aid for struggling petrochemical industry

SINGAPORE (ICIS)–South Korea is streamlining regulations to make it easier for regions densely populated by petrochemical companies to qualify as “industrial crisis response areas”, a designation that unlocks government support and financial assistance to mitigate impact of market downturns.

• Yeosu, Ulsan, Daesan petrochemical hubs to benefit
• Focus shifts to manufacturing for crisis designation
• Voluntary business restructuring encouraged

This designation also unlocks access to tailored assistance in areas like employment stability, R&D, commercialization, market access, and consulting, according to a Ministry of Trade, Industry and Energy (MOTIE) administrative notice released on 5 February.

The new regulation follows a wide-ranging support package unveiled by the government on 23 December 2024, aimed at bolstering the competitiveness of its domestic petrochemical industry, which is facing a global oversupply driven by expansions in China and the Middle East.

This policy shift is expected to benefit major petrochemical hubs such as Yeosu, Ulsan, and Daesan, providing them with greater access to resources designed to mitigate economic downturns and to support continued growth within the sector.

Previously, the high proportion of the services sector in cities like Yeosu hindered their ability to be designated as industrial crisis response areas.

The revised regulations will now assess “regional stagnation” based solely on the manufacturing sector, excluding service industries.

This change will allow regions heavily reliant on manufacturing, particularly petrochemicals, to meet the designation criteria more readily.

MULTI-PRONGED STRATEGY
A cornerstone of the government’s latest plan is encouraging voluntary business restructuring, encompassing facility closures, sales, joint ventures, efficiency improvements, and new business acquisitions.

To facilitate these changes, the government will implement legal reforms and offer a range of financial and tax incentives.

These include extending the grace period for acquiring 100% of holding company shares from three to five years and streamlining merger reviews with the Korean Fair Trade Commission (FTC), the country’s regulatory authority for economic competition.

A dedicated consultation channel between MOTIE and the FTC will further expedite reviews and support restructuring efforts.

Separately, the government plans to provide up to Korean won (W) 3 trillion ($2.1 billion) in financing packages for petrochemical companies seeking to revamp their business portfolios, including expanded access to a W1 trillion business restructuring fund managed by the Korea Development Bank.

For designated Industrial Crisis Response Areas, existing loan maturities from policy financial institutions will be extended, principal repayments deferred; national tax payment deadlines extended; and seizure and sale deferred for up to one year.

Beyond restructuring, the government is targeting cost reduction.

The duty-free period for crude oil used in naphtha production will be extended by a year until the end of 2025 and import surcharges on liquefied natural gas (LNG) used as industrial raw materials will be refunded.

A “fast-track” approval process will be implemented for ethane terminal and storage tank construction to facilitate access to cheaper raw materials.

Additional cost-saving measures include expanding electricity rate options through distributed power trading and rationalizing safety regulations.

The plan will also support R&D focused on shifting production from general-purpose petrochemicals to specialized, high-value-added products.

An “R&D Investment Roadmap for 2025-2030” will be unveiled in the first half of this year, and preliminary feasibility studies for high-value and eco-friendly chemical material technology development will be conducted.

The support ratio for regional investment subsidies in Industrial Crisis Response Areas will be increased, national strategic and new growth technologies will be identified, and a W50 billion “High-Value Specialty Fund” will be established to promote production of specialty chemicals.

DOMESTIC PRODUCERS STRUGGLE
South Korea’s four largest petrochemical manufacturers – LG Chem, Lotte Chemical, Kumho Petrochemical and Hanwha Solutions – faced continued challenges in 2024.

LG Chem reported a net loss of W899.2 billion in the fourth quarter, reversing the net profit of W128.5 billion a year ago due to decreased demand for both petrochemicals and battery materials. It also reported an operating loss of W252 billion in the same period.

The company has revised down its capital expenditure plan for the year to W2 trillion-3 trillion from W4 trillion previously as it navigates the market downturn.

Separately, as part of its global expansion strategy, LG Chem has secured a deal to supply cathode materials to Prime Planet Energy and Solutions (PPES) – a joint venture of Japanese carmaker Toyota and appliance maker Panasonic – starting 2026.

The company will focus on developing eco-friendly materials and technologies that align with PPES’ low-carbon vision.

Meanwhile, major ethylene producer Lotte Chemical in Q3 2024 reported a loss of W514 billion, on “delayed demand recovery, lower product spreads due to currency depreciation, one-time costs from maintenance at overseas subsidiaries, and rising shipping costs”.

The company is now pursuing an asset-light strategy, which involved liquidation of its Malaysian synthetic rubber production subsidiary Lotte Ube Synthetic Rubber (LUSR) – a joint venture with Japan’s Ube Elastomer.

Based in Johor, Malaysia, LUSR produces 50,000 tonnes/year of polybutadiene rubber (PBR).

Lotte Chemical also plans to generate W1.4 trillion in proceeds from sale of stakes in overseas subsidiaries.

Synthetic rubber major Kumho Petrochemical Co reported on 4 February a Q4 net income of W61.3 billion, down 33% year on year, due to weak market demand due to a year-end drop in raw material prices; with operating profit shrinking by about 72% to W10 billion despite a 19% increase in sales to W1.8 trillion.

Insight article by Nurluqman Suratman

($1 = W1,446)

Thumbnail image shows an aerial view of a container pier in South Korea’s southeastern port city of Busan. (YONHAP/EPA-EFE/Shutterstock)