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![[Editorial] Timely action needed](/_next/image?url=https%3A%2F%2Fall-logos-bucket.s3.amazonaws.com%2Fkoreaherald.com.png&w=48&q=75){kind=small}
Korea Herald
14 hours ago
- Business
- Korea Herald
[Editorial] Timely action needed
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.
Free Malaysia Today
6 days ago
- Business
- Free Malaysia Today
South Korea to restructure petrochemical sector facing ‘grave' situation
There have been concerns over the financial health of South Korea's loss-making Yeochun NCC Co. (KED pic) SEOUL : South Korea's government will announce a plan this month to restructure the country's petrochemical sector, which is in a 'grave' situation, industry minister Kim Jung-kwan said today. 'South Korean petrochemical companies must take lessons from the restructuring of the country's shipbuilding industry in the late 2010s, when shipmakers had to liquidate assets and streamline business areas during a period when they faced a sharp drop in orders,' Kim said. Kim, who was speaking at a shipyard, said the petrochemical industry needed to take voluntary measures, including the 'adjustment' of facilities, his ministry quoted him as saying. There have been concerns over the financial health of South Korea's loss-making Yeochun NCC Co (YNCC), a Yeosu-based petrochemical maker, which media reports said faced about ₩180 billion ($130 million) in loans coming due at the end of August. Margins have plunged for petrochemical companies in South Korea and across the globe due to an oversupply of oil products caused by relentless capacity additions in the last decade, particularly in the biggest petrochemical market China. Demand has also been sluggish in the last three to four years. Analysts say the industry does not expect global petrochemical margins to recover before 2027. 'South Korea's government can use YNCC's travails as an opportunity for a large-scale restructuring in the industry,' said Hwang Kyu-won, an analyst at Yuanta Securities Korea. 'A restructuring in the petrochem industry has been highly expected, given the industry is running merely 80% of total capacity in Korea now – meaning we have about a 20% glut here,' Hwang said. President Lee Jae Myung, who took office after a snap election in June, pledged during the campaign to pursue legislation with tax support for mergers and acquisitions in the petrochemical industry, and to exempt companies from some antitrust regulations to allow more coordination of production and operations. The last major restructuring for South Korea's petrochemical industry was in 1999 during the Asian Financial Crisis, when YNCC was formed.
Korea Herald
11-08-2025
- Business
- Korea Herald
Yeochun NCC bankruptcy fears highlight wider petrochemical woes
Hanwha, DL split over extra funding to keep joint venture afloat Korea's petrochemical industry, the fourth-largest ethylene producer in the world, stands at a crossroads as Yeochun NCC faces possible bankruptcy amid a prolonged downturn and oversupply issues from Chinese competition. Yeochun NCC -- a 50:50 joint venture formed in 1999 by Hanwha Solutions and DL Chemical when they combined their naphtha cracking centers at the Yeosu National Industrial Complex -- halted operations at Plant 3 on Friday. According to industry sources, the company needs to secure more than 300 billion won ($216 million) by Aug. 21 to avoid default. Although Hanwha Solutions' board of directors approved a 150 billion won loan at the end of last month to save Yeochun NCC, DL Chemical rejected the idea of offering the same amount of financial relief to the struggling joint venture. Stakeholders of Yeochun NCC recently held an emergency meeting to discuss ways to overcome the crisis. During the meeting, DL Group Chairman Lee Hae-wook said his company will not sign a supply contract with Yeochun NCC, and DL cannot pour money into a firm that has no plan for recovery if it defaults, according to sources familiar with the matter. Hanwha urged DL to take responsibility as a stakeholder, arguing that there is room for improvement and Yeochun NCC can return to the black with time. After holding another urgent board meeting on Monday, DL is expected to announce soon how it will proceed with Yeochun NCC. With China's rapid expansion of petrochemical plants causing oversupply problems, Yeochun NCC has been in the red for the past few years, posting net losses of 347.7 billion won in 2022, 240.2 billion won in 2023 and 236 billion won last year. Hanwha and DL each chipped in 100 billion won to help Yeochun NCC in March this year, but it was not enough to stop the bleeding. Yeochun NCC is not the only ailing player in Korea's petrochemical industry. LG Chem, the country's biggest petrochemical company, has shut down the styrene monomer production lines at its plants in Yeosu and at the Daesan Petrochemical Industrial Complex in Seosan, South Chungcheong Province. Lotte Chemical also halted production lines for ethylene glycol and ethylene oxide adducts at its Plant 2 in Yeosu in December. LG Chem's petrochemical business logged a 90.4 billion won operating loss in the second quarter this year, while Lotte Chemical reported a loss of 244.9 billion won in the same period. In a seminar last month at the National Assembly, Boston Consulting Group assessed that within three years, half of Korea's petrochemical companies will see their survival at risk. BCG pointed out that if one or two companies enter court receivership in a petrochemical industrial complex, their second- and third-tier partners could face a cascade of bankruptcies. To overcome the mounting losses and unfriendly business environment, Korea's petrochemical leaders have been taking a range of measures. LG Chem sold its water solution business for 1.4 trillion won and decided to sell its aesthetics business for 200 billion won. Lotte Chemical secured 1.7 trillion won in cash, mostly by selling off shares in its overseas subsidiaries. Still, the private sector is calling on the government to come up with support packages to prevent a total collapse of the petrochemical industry and the economies of the regions where petrochemical complexes are located. 'The petrochemical industry needs a ventilator right now,' said an official working at a local petrochemical company. 'The first thing we are asking for is a reduction in the price of electricity. With the rise of China and the Middle East, we need new high-value-added growth engines, so financial support for R&D is what we need.' The Korea Institute for Industrial Economics and Trade forecast in a report that China will account for 44 percent of the world's new and expanded petrochemical production facilities through 2030. 'Amid the slow recovery of global demand for petrochemicals and the growth of China's domestically produced (petrochemicals) leading to oversupply, (Korea's) major petrochemical companies face unclear prospects for improved profitability,' said the KIET report. 'Because of the increased likelihood of a slowdown in the petrochemical industry, domestic petrochemical firms have only limited ability to make large-scale investments.' The Korean government is expected to announce a set of support measures such as financial and tax benefits to restructure and strengthen the country's ailing petrochemical industry later this month after Minister of Trade, Industry and Energy Kim Jung-kwan vowed to quickly take such steps during his confirmation hearing at the National Assembly last month.
