[Exclusive] Petrochemical Industry’s Survival Strategy: Expand Policy Funding to 5 Trillion Won, Designate Special Zones, Ease Electricity Rates

Consensus on Facility Reduction Reached at Meeting of Lawmakers, Associations, and Industry Executives
Discussions Held on Institutional Reforms
Blocking Influx of Low-Priced Chinese Products a Top Priority; Collusion Rules May Be Eased

The petrochemical industry’s statement at the meeting titled "The Petrochemical Industry in Crisis, Finding a Breakthrough," held on the 19th at the FKI Tower in Yeouido, Seoul, that it must voluntarily phase out uncompetitive facilities, was both a response to government pressure and a sign that the sense of crisis within the industry has reached a critical point, making it increasingly difficult to endure.

On August 20, Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol will preside over the "Ministerial Meeting on Strengthening Industrial Competitiveness" to announce the "Petrochemical Industry Restructuring Plan." This plan includes providing various incentives to companies that make self-help efforts such as reducing or shutting down production facilities and selling off business units. Expectations are rising that the pace of restructuring will accelerate as the industry’s voluntary will aligns with government policy. Many believe that the triple challenges of oversupply from China, an unfavorable domestic cost environment, and the collapse of traditional business cycles have become unbearable for companies.

Kim Kihyun (fifth from left) and Park Sungmin (fourth from left), members of the People Power Party, and petrochemical industry representatives from Ulsan are posing for a commemorative photo at the "Petrochemical Industry in Crisis, Finding the Breakthrough" meeting held on the 19th at the FKI Tower in Yeouido, Seoul. Photo by Jo Yongjun

Among the remarks made by key representatives from SK Geocentric, Aekyung Chemical, Taekwang Industrial, Hanwha Solutions, Hanwha Impact, and Hyosung Chemical at the meeting, a notable point was the assertion that "facilities less competitive than those in China must be decisively phased out." Currently, only a handful of facilities in Korea’s petrochemical industry are more competitive than those in China. Hyosung Chemical stated that only small-volume, high-value-added engineering plastics such as polyketone can avoid price competition with China. The company has already halted operations of its mainstay propane dehydrogenation (PDH) facility-based general-purpose propylene chain. Taekwang Industrial also assessed that only niche specialty chemicals like sodium cyanide (NaCN) have a competitive edge.

Participants emphasized that government support is crucial for industry-wide restructuring. Blocking the influx of cheap Chinese products is the top priority. A representative from Aekyung Chemical said, "While global imports of Russian crude oil are restricted, China has monopolized these supplies and is dumping surplus volumes generated by increased self-sufficiency onto overseas markets at low prices."

There was also a call to expand policy funding to ensure a smooth transition for business conversion. Currently, support through the Korea Development Bank, Export-Import Bank of Korea, and Industrial Bank of Korea amounts to about 3 trillion won, but with restructuring and inevitable investments in high-value-added and eco-friendly facility conversions, this should be increased to at least 5 trillion won. One participant stated, "Downstream products have also lost competitiveness, causing export volumes to plummet. Although we are continuing to invest for business transformation, it will take at least five years to see results." The participant also suggested the need to ease short-term burdens such as electricity rates and logistics costs, proposing practical support measures such as designating special zones for distributed energy, easing industrial electricity rates, and opposing the resumption of the Safe Freight Rate System.

It was also stressed that institutional support is essential to accelerate voluntary restructuring. Discussions on cooperation or facility adjustments between companies are currently restricted, as they may be misunderstood as collusion under the existing Fair Trade Act. An industry representative pointed out, "If the government emphasizes voluntary restructuring, regulatory improvements must follow. Only by sharing data and consulting can we optimize facility adjustments." The Fair Trade Commission is reportedly preparing related measures.

The prevailing view is that the current downturn in the petrochemical industry is not a cyclical trend but a structural crisis. For example, the price gap between polyester, a chemical fiber, and its raw material paraxylene (PX) is only $70, which is just a quarter of the $250 break-even point. An industry representative said, "The downstream supply chain from PX to purified terephthalic acid (PTA) to polyester is being shaken, and the market share of Chinese products is expanding."

Kim Kihyun, a member of the People Power Party, is speaking at a meeting of petrochemical companies based in Ulsan held on the 19th at the FKI Tower in Yeouido, Seoul, under the theme "The Petrochemical Industry in Crisis, Finding a Breakthrough." Photo by Jo Yongjun

Assemblyman Kim Kihyun, who hosted the meeting, stated, "I will push for the enactment of a special law to enable companies to voluntarily phase out uncompetitive facilities and proceed with restructuring." Assemblyman Park Sungmin, secretary of the National Assembly’s Trade, Industry, Energy, SMEs and Startups Committee, said, "We will expand tax support and supplement companies’ investment capacity by revising the Restriction of Special Taxation Act." In June, Assemblyman Joo Cheolhyeon of the Democratic Party of Korea (Yeosu-si Gap, Jeonnam) also proposed the "Special Act on Strengthening the Competitiveness of the Petrochemical Industry," which focuses on promoting research and development and encouraging mergers and acquisitions. There is a growing consensus across party lines on the need to overcome the industry crisis.