Benchmarking Japan's Petrochemical Restructuring
Lessons for Overcoming Oversupply and Low Profitability
Toward a High Value-Added, Globally Competitive Industry
As restructuring efforts in South Korea's petrochemical industry are gaining momentum, a recommendation has been made that benchmarking Japan's restructuring experience could help overcome structural crises such as oversupply and low profitability, and build global competitiveness centered on high value-added products.
On the 28th, Samil PwC announced the publication of a report titled "Cases and Implications of Petrochemical Industry Restructuring in Japan." The report analyzes Japan's experience in resolving excess capacity, transitioning to high value-added products, and achieving global expansion through three rounds of restructuring, and presents practical measures for South Korea.
According to the report, Japan's petrochemical industry was pushed to the brink in the early 1980s due to indiscriminate expansion of small- and medium-sized facilities, a sharp rise in costs caused by surging crude oil and naphtha prices, and a flood of low-priced Chinese imports. The Japanese government enacted the Temporary Measures Law for the Improvement of Specific Industries and ordered the closure of outdated and redundant naphtha cracking centers (NCCs), launching a rigorous restructuring. As a result, facility utilization rates increased and productivity recovered, but many small and medium-sized enterprises were forced out of the market, and there was criticism that excessive government intervention undermined market autonomy.
In the early 1990s, Japan's economy fell into a prolonged recession, leading to a sharp drop in demand for petrochemical products. At the same time, continued low-priced competition from the Middle East and China eroded the price competitiveness of Japanese companies. Instead of the government-led restructuring approach of the 1980s, the Japanese government introduced the Industrial Revitalization Law, encouraging voluntary mergers and acquisitions (M&A) and gradual integration within the market. The report notes, "Regulations were relaxed and special tax and procedural benefits were provided to accelerate mergers, splits, and joint ventures, thereby upgrading portfolios to focus on high-performance materials and electronic components."
The third round of restructuring in the 2000s was characterized by autonomy and globalization. The government focused on deregulation and tax support, stepping back, while companies secured global competitiveness by integrating "kombinats" (industrial complexes where mutually complementary factories are clustered in one area) and expanding overseas bases. Companies such as Sumitomo, Mitsubishi, and Mitsui boldly shut down excess facilities and accelerated their shift to high value-added products. The report states, "The third restructuring was not about 'doing it because the government said so,' but rather a testing ground for market instincts-'change on your own to survive.' Instead, the government maintained an institutional safety net and provided financial and tax support as a lifeline."
The report also addressed the situation in South Korea's petrochemical industry. Amid persistent declines in domestic utilization rates due to low-priced competition from China and global capacity expansion, the attempted integration of the NCCs of Lotte Chemical and HD Hyundai Chemical is seen as a signal for restructuring. However, the report pointed out that there are high institutional barriers, such as fair trade reviews, appraisal rights, and tax burdens. Reflecting the intent of Japan's Industrial Revitalization Law, the report proposed that the Corporate Revitalization Act (One-Shot Act) be reformed to focus on practical incentives. It suggested that beyond mere procedural simplification, a "Korean-style restructuring package" is needed, including tax reductions, permanent regulatory flexibility, financial and guarantee packages, and cash incentives.
Choi Changyoon, leader of the large enterprise financial advisory services at Samil PwC's Deals division (Partner), stated, "There is not much time left in the golden window for petrochemical restructuring. For companies to reduce excess capacity and shift to high value-added products, South Korea needs even stronger deregulation and practical support measures than Japan. While Japan took 40 years to restructure, South Korea must complete this within two years."
Lee Subin, partner in charge of the petrochemical sector at the Deals division, added, "While the government should handle deregulation, tax support, and coordination with labor unions and local governments, companies should decide which areas to restructure. It is worth referring to the Japanese model."
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