"Petrochemical Industry Outlook Difficult to Recover in Short Term"…Government Struggles to Find Solution

Ministry of Industry Holds Meeting with Petrochemical Company CEOs
Oversupply Continues Due to Expansion in China and Middle East
"Active Government Incentives Needed for Business Restructuring" Demanded
Government Formed TF in April but Has Yet to Present Solutions

The sense of crisis in the petrochemical industry is intensifying due to a global oversupply. Although the government has formed a consultative body to support the restructuring of petrochemical companies, it has yet to present concrete solutions. The industry is demanding government incentives for swift business restructuring.

On the 19th, the Ministry of Trade, Industry and Energy held a meeting chaired by Minister Andeok-geun with presidents of major petrochemical companies to discuss ways to overcome the crisis in the oil industry. Attendees included presidents from major petrochemical companies such as LG Chem, Lotte Chemical, SK Geocentric, Daehan Petrochemical, Yeochun NCC, HD Hyundai Chemical, and GS Caltex.

At the meeting, participants agreed that although the global petrochemical industry recorded a historic high level of oversupply last year, the industry is unlikely to recover quickly as China and the Middle East continue to expand capacity. China, the largest importer of petrochemical products, has already surpassed 100% self-sufficiency in basic feedstocks such as ethylene and propylene (PP) since 2020, and this is expected to rise to 120% by 2025. Middle Eastern countries are expanding their business areas into petrochemicals, anticipating that oil demand will soon peak, known as ‘peak oil.’ Saudi Arabia’s state-owned oil company Aramco is building the world’s largest integrated refinery and petrochemical complex in the western Medina province.

Domestic companies are undertaking restructuring measures such as shutting down some plants or reducing workforce. Some companies are reportedly considering selling facilities. Recently, global credit rating agencies have consecutively downgraded the credit ratings of domestic petrochemical companies. In the first half of this year alone, the credit ratings of LG Chem, Hanwha Solutions, SK PIC Global, and Hyosung Chemical were lowered.

Minister Anduk Geun of the Ministry of Trade, Industry and Energy is presiding over the "Petrochemical Industry Meeting" on the morning of the 7th at Dalgaebi Conference House in Jung-gu, Seoul, attended by Shin Hak-cheol, Vice Chairman of LG Chem; Kang Gil-soon, President of Daehan Petrochemical; Lee Hoon-gi, President of Lotte Chemical; Na Kyung-soo, President of SK Geocentric; Lee Yoo-jin, President of Yeochun NCC; Ko Young-gyu, CEO of HD Hyundai Chemical; and Eom Chan-wang, Vice Chairman of the Korea Petrochemical Industry Association.

In a report titled ‘Petrochemical Companies 2024 First Half Regular Evaluation Results’ released last month, NICE Credit Rating stated, "Due to higher cost structures compared to foreign competitors, domestic companies may generate profits that are less favorable than during past booms even if supply and demand improve." It further noted, "Especially, Chinese facilities that will operate after 2026 are expected to have superior cost competitiveness compared to China, increasing the likelihood that Korea’s naphtha cracking center (NCC) industry will accelerate restructuring similar to Japan in the past."

Participants at the meeting expressed that while prompt business restructuring is desirable, high interest rates and uncertainties in the petrochemical sector make investment decisions difficult, and thus they requested the government to actively provide incentives related to business restructuring. Other topics discussed included strengthening cooperation among companies within industrial complexes to reduce costs, expanding policy financial support, and creating initial markets for eco-friendly products.

The Ministry of Trade, Industry and Energy launched the ‘Petrochemical Industry Competitiveness Enhancement Consultative Body’ after holding an industry meeting in April, but has yet to present clear solutions. The ministry explained that it has continuously gathered industry opinions through thematic and on-site meetings and plans to actively coordinate with related ministries to further specify measures to strengthen the competitiveness of the petrochemical industry. Minister Andeok-geun gave a general response, stating, "The government will actively support our petrochemical industry, which has global competitiveness, to turn this crisis into an opportunity for a new leap forward."

This content was produced with the assistance of AI translation services.