3 Trillion Financial Support and Expansion of Kiva Act... Industry "Welcomes" Petrochemical Measures

Ministry of Industry Announces Measures to Enhance Competitiveness
Encouraging Voluntary Business Restructuring by Companies
Includes Expansion of Kihwal Act, Financial Support, and R&D Assistance

The petrochemical industry, which is experiencing the worst business conditions in history, has welcomed the government's announcement of restructuring support measures. The industry expects this plan to be a turning point to overcome profitability deterioration and crisis. In particular, the industry positively evaluates the swift preparation of measures despite political turmoil.

On the 23rd, Shin Hak-cheol, chairman of the Korea Chemical Industry Association, issued a statement saying, "On behalf of the industry, I express gratitude for the government's continuous attention and the smooth announcement of measures to enhance the competitiveness of the petrochemical industry." He emphasized, "We will closely communicate with the government and industry to ensure the proposed measures are implemented without delay so that the petrochemical industry can overcome the crisis it faces and achieve sustainable growth as a national key industry."

The petrochemical industry has recently suffered severe profitability deterioration due to global oversupply and weakening industrial competitiveness. Major naphtha cracker (NCC) companies have recorded operating losses for three consecutive years, experiencing the worst business conditions. The industry is promoting business restructuring such as downsizing general-purpose businesses and transitioning to a high value-added eco-friendly industrial structure including fine chemicals and battery materials, but urgent government support with a sense of speed was necessary. The cumulative operating loss of the four major domestic petrochemical companies (LG Chem, Lotte Chemical, Hanwha Solutions, Kumho Petrochemical) exceeded 500 billion KRW in the third quarter.

The Ministry of Trade, Industry and Energy formed the 'Task Force (TF) for Strengthening Competitiveness of the Petrochemical Industry' in April and has been discussing comprehensive support measures with the industry and related ministries. The 'Measures to Enhance Competitiveness of the Petrochemical Industry' announced the day before consist of three parts: ▲support for voluntary business restructuring by companies ▲strengthening global market competitiveness ▲focusing on high value-added eco-friendly materials.

First, to support voluntary business restructuring by companies, the scope of application of the Special Act on Corporate Vitalization (Corporate Vitalization Act) will be expanded. The Corporate Vitalization Act is a system where the government supports companies in oversupplied industries that voluntarily reduce facilities or pursue mergers and acquisitions (M&A). The government recently expanded the criteria for determining oversupplied industries based on the operating profit margin indicator for the last four quarters, and extended the exemption period from regulations on holding companies under the Corporate Vitalization Act for business restructuring companies from the existing three years to five years. In addition, to facilitate rapid decision-making by companies, the prior review of information exchange will be simplified.

To resolve liquidity issues in the petrochemical industry, policy funds will be injected for business transformation. The government will supply a total of 3 trillion KRW in policy financial funds to the industry, and if a joint venture is established for business restructuring under the Corporate Vitalization Act or M&A is conducted with high value-added material companies, business structure transformation support funds can be utilized.

Night view of Kumho Petrochemical Yeosu Rubber Plant 2. Provided by Kumho Petrochemical

To strengthen global market competitiveness, policies to alleviate raw material cost burdens will also be implemented. The tariff-free period for naphtha and crude oil used for naphtha production will be extended by one year until 2025. Additionally, the use of cheaper ethane and LPG compared to existing naphtha will be encouraged. Discussions to promote voluntary cooperation measures among companies in industrial complexes, such as joint purchasing of consumables to reduce costs, will also be facilitated.

Furthermore, to shift the portfolio to high value-added products, research and development (R&D) support will be expanded. The main areas are ▲high value-added material technologies linked to key industries such as semiconductors and batteries ▲core technologies for carbon reduction ▲technologies to respond to global environmental regulations. The government plans to establish a public-private joint '2025-2030 R&D Investment Roadmap' by the first half of next year to focus R&D capabilities on these areas.

With government support, petrochemical companies are expected to accelerate the sale of non-core assets and business portfolio restructuring. LG Chem sold its IT materials division's polarizer and materials business for about 1.1 trillion KRW last year and is currently in final negotiations for the sale of NCC Plant 2. Lotte Chemical secured about 1.3 trillion KRW through the sale of overseas corporate shares and recently decided to liquidate its Malaysian synthetic rubber production corporation (LUSR).

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