[Editorial] Timely action needed

Korea Herald

5 hours ago

Petrochemicals confront a brutal cycle; delay in restructuring could prove costlier
South Korea has seen this cycle before. Global demand lifts an industry, firms expand capacity, China builds even more and margins collapse. Then comes the painful stage: state-led restructuring, with mergers, closures and political fallout. Shipbuilders endured it in the late 2010s. Now, petrochemicals are at the center of the storm.
The warning signs have long been visible. China has nearly tripled its ethylene output over the past decade, colliding with soft global demand and pushing South Korean plants into crisis mode.
Naphtha crackers are running at barely two-thirds of capacity, well below the threshold for profitability. Yeochun NCC, once a dependable cash generator, narrowly avoided default this month with emergency shareholder loans. LG Chem and Lotte Chemical have been shuttering weaker facilities and selling assets, while others report steep quarterly losses.
A recent study by the Boston Consulting Group suggested that without drastic cuts, half of Korea's petrochemical firms may not survive the next three years. The 'golden time' for voluntary restructuring has already passed.
This is not a marginal industry. Petrochemicals make up roughly 7 percent of South Korea's exports and form a critical layer of supply chains in autos, electronics, construction and textiles. They also anchor the vast complexes of Yeosu, Ulsan and Daesan, where refineries, steel plants and power generators interconnect. If one pillar weakens, the others tremble.
Already, distress is spreading: Posco has slipped into losses, strained by US tariffs on steel imports, while solar and secondary battery divisions are reporting lower utilization. Taken together, petrochemicals are less an isolated casualty than a signal of strain across the country's heavy industry.
President Lee Jae Myung on Thursday ordered a comprehensive response, calling for sharp capacity adjustments, business integration and a pivot toward higher-value products.
The Ministry of Trade, Industry and Energy is drafting measures reminiscent of earlier shipbuilding rescues and of Japan's rationalization drive in the 2010s: loosening antitrust rules, granting tax incentives for mergers and closures, and excluding firms that refuse to participate.
Behind the scenes, officials are pressing conglomerates to engineer 'big deals' among rivals. Such state direction sits uneasily with Korea's free-market rhetoric, but the alternative is worse: disorderly bankruptcies and cascading damage to the industrial base.
The obstacles, however, are formidable. Unlike shipbuilding, where strategy could be focused on LNG carriers and other niches, petrochemicals sprawl across dozens of bulk products and ten large companies. Merging will be messy, fraught with politics, and slow to deliver returns.
Moreover, because South Korea is the world's largest importer of naphtha, any significant cut in its output could reverberate through global oil markets. Policymakers must trim excess while preserving strategic leverage, a balance that is easier to prescribe than to execute.
What is beyond dispute is that incremental fixes will not suffice. Competing in commodity-grade chemicals against Chinese and Middle Eastern giants is unwinnable. The industry must shift decisively toward fine chemicals, specialty products and eco-friendly materials where margins can be sustained.
The painful change means pruning noncore businesses, consolidating overlapping assets and absorbing the political costs of job losses. The government, for its part, must provide credible retraining and employment policies, lest overhaul become another synonym for unemployment.
This industrial drama unfolds in harsher conditions than in past crises. China's expansion remains relentless, US protectionism is rising and South Korea's demographics weigh heavily on its labor force. The costs of delay are visible already: 13 straight months of manufacturing job losses, eroding margins and an unmistakable sense of industrial fatigue.
Shipbuilders, after wrenching restructuring, eventually clawed back to profit and relevance. Whether petrochemicals can do the same hinges on how quickly South Korea confronts its excess capacity. Delay itself is a choice — and perhaps the most damaging one.