The South Korean government unveiled a plan on Dec. 23 aimed at bolstering the struggling petrochemical industry, following an eight-month collaboration between the Ministry of Trade, Industry, and Energy and industry stakeholders.
The announcement, made during an economic ministers’ meeting, outlined measures to strengthen competitiveness in the petrochemical industry. The timing of the release had been uncertain due to recent political turmoil, but the government reportedly recognized the urgency of the industry’s structural crisis, which industry representatives called a matter of survival.
The plan focuses on restructuring South Korea’s ethylene industry, which is considered a cornerstone of the petrochemical sector, through support for asset sales, mergers and acquisitions, and facility closures.
Once a major export driver, the petrochemical sector accounted for about 8.2% of S. Korea’s exports in 2018, valued at approximately $500 billion, making the nation the world’s fourth-largest producer. However, global oversupply has pushed the sector into decline, making restructuring a priority.
S. Korea’s petrochemical industry has traditionally relied on a model of importing naphtha—either from domestic refineries or overseas—processing it in naphtha cracking centers (NCCs), and generating profits by selling ethylene.
Ethylene, a key material with broad applications, is used in products ranging from plastic bottle caps and film to electronic components and diapers. However, S. Korean producers have struggled to stay competitive as China’s massive capacity expansions have reshaped the market. By last year, China’s ethylene production capacity had soared to 52.74 million tons, four times that of S. Korea’s 12.8 million tons.
To support restructuring, the S. Korean government plans to give companies more time—extending the grace period for holding company equity rules from three to five years—and will simplify the approval process with the Fair Trade Commission.
The government also plans to provide approximately $2 billion in policy financing to speed up corporate restructuring. Additionally, areas impacted by plant closures will be identified as regions needing urgent industrial support, with measures such as extended loan repayment deadlines, subsidies to help retain jobs, and other forms of assistance.
Furthermore, the government unveiled plans to lower production costs and improve competitiveness. Among the measures is a one-year extension of the tariff exemption on crude oil used for naphtha production, lasting through the end of 2025.
To strengthen the industry, S. Korea aims to transition from low-margin commodity products to high-value specialty goods, such as advanced materials. The government will develop a research and development roadmap for 2025–2030, expected to be released in the first half of next year. Japan’s Toray Industries, which successfully shifted from commodity products to aerospace materials in the 1990s, is being highlighted as a model for this approach.
The Korea Chemical Industry Association welcomed the measures, noting that major NCC companies have reported operating losses for three consecutive years, with some posting their worst performances on record. “The government’s swift support is crucial,” the association said. However, leading companies like LG Chem and Lotte Chemical have already halted operations or are exploring asset sales, with limited success in finding buyers amid the persistent global oversupply.
Global ethylene production capacity stood at about 229 million tons as of early this year, outstripping demand of 188 million tons. Meanwhile, China and the Middle East continue to ramp up production. China, once a major export market for S. Korean petrochemical products, now has enough capacity to meet its needs and export surplus.
The Middle East is becoming an increasingly formidable competitor in the petrochemical industry, especially as energy companies in the region expand aggressively. These companies are making large-scale investments based on crude oil-to-chemicals (COTC) technology, which allows them to produce ethylene directly from crude oil, bypassing the naphtha stage. For S. Korean companies that rely on naphtha to produce ethylene, this poses a significant challenge.
Saudi Arabia’s state-owned energy giant Aramco is also making substantial moves, investing approximately $6.2 billion to build a large-scale petrochemical complex in Ulsan by 2026. The facility will have the capacity to produce 1.8 million tons of ethylene annually. Its key advantage lies in vertical integration—handling the entire process from crude oil to ethylene internally. This integration enables Aramco to produce ethylene at roughly one-third the cost of S. Korea’s naphtha cracking centers (NCCs), further intensifying competition.
