South Korea will ease regulations and offer incentives to facilitate the restructuring of domestic petrochemical makers battling a global supply glut and overcapacity in China and the Middle East, said the Ministry of Economy and Finance on Monday.
The government hopes a relaxtion in the rules to spur their mergers and acquisitions and plant closures to shift into high-end, specialty chemicals such as copolyesters and acrylonitrile butadiene styrene (ABS) away from basic chemicals such as ethylene.
As South Korea’s leading petrochemical companies are forecast to swing to losses this year, Finance Minister Choi Sang-mok announced a string of measures aimed at bolstering the sector’s competitiveness at a ministerial meeting.
The measures include providing a total of 3 trillion won ($2.1 billion) in policy financing such as low-cost loans and payment guarantees for plant shutdowns and sales. Such incentives will also be offered to joint ventures to be established and M&A deals.
Additionally, the government will extend the suspension of import tariffs on naphtha, feedstock for petrochemical products, and oil used at naphtha cracking centers (NCC) by one year to the end of 2025.
It will refund import duties charged on liquefied natural gas used for industrial materials as well.
The Korea Fair Trade Commission will review their M&As and plant closures in a shorter period of time than normal.
The measures were unveiled as Korean petrochemical makers are striving to jettison basic chemicals plants to stem losses.
The country’s four largest petrochemical manufacturers – LG Chem Ltd., Lotte Chemical Corp., Kumho Petrochemical Co. and Hanwha Solutions Corp. – reported consolidated losses of a combined 417.0 billion won in the third quarter. That compared with the 39.0 billion won shortfall in the fourth quarter of 2023.
The industry is looking closely at whether such policy efforts will lead to a shutdown or sale of Yeochun NCC (YNCC), the country’s No. 3 ethylene producer.
Restructuring the loss-making joint venture between Hanwha Solutions and DL Chemical could trigger a shake-up in the sector, said industry officials.
But Hanwha and DL are said to have no plan to sell the YNCC in an immediate future.
Those industrial officials pointed out the government measures are not attractive enough to lead to a voluntary production cut.
A rebound in ethylene margins, which have more than doubled over the past two months, could delay their restructuring.
“We’re stuck in a dilemma where one company’s production cut benefits another,” said an industry official. “To facilitate M&As, we need stronger incentives.”
By Kyung-Min Kang and Hyung-Kyu Kim
Kkm1026@hankyung.com
Yeonhee Kim edited this article.
