Responding to capacity cycles! south korea approves restructuring projects for four major petrochemical firms, allocates $472 million support funds

Singapore (ICIS) — The South Korean government has approved a major petrochemical restructuring project in the southern city of Yeosu, involving Yeochun NCC (YNCC), Lotte Chemical, Hanwha Solutions, and DL Chemical. The government has pledged support measures totaling more than Won 700 billion ($472.1 million).

On July 22, South Korea’s Ministry of Trade, Industry and Energy said the government had approved the final restructuring plans of four companies. This is South Korea’s second petrochemical industry restructuring measure, following approval of the Daesan project earlier this year.

The Industrial Resources Department stated in the announcement that according to the restructuring plan, Hanwha Solutions and DL Chemical will inject their downstream polyethylene businesses into YNCC; Lotte Chemical will split its Yeosu naphtha cracking center and basic raw materials business, which will then be integrated into YNCC to form a new integrated operating entity.

The reorganization will shut down two cracking units at YNCC, with a total ethylene production capacity of 1.39 million tons per year.

The Industry Resource Department added that the two units with an annual capacity of 920,000 tons and 470,000 tons at YNCC will suspend operations; the 900,000 tons/year cracking unit at YNCC and the 1.23 million tons/year cracking unit at Lotte Chemical in Yeosu will continue to operate.

Participating companies plan to implement approximately KRW 800 billion in self-rescue measures and restructuring investments, of which Hanwha Solutions and DL Chemical will contribute KRW 545 billion to reduce YNCC’s debt, while an additional KRW 253 billion will be invested in facility integration and the R&D and production of high-value-added products.

As part of its support measures, South Korea will continue to apply a zero-tariff policy on imported naphtha and crude oil used for naphtha production through 2026, which is expected to help companies reduce operating costs by approximately KRW 15.6 billion during the restructuring period.

The government's supporting plan also includes a maximum of 4.5 trillion won in new financing, debt repayment extended until 2029, and 200 billion won in import insurance support provided through the Korea Trade Insurance Corporation.

The Ministry of Trade, Industry and Energy of South Korea said the restructuring is expected to ease the domestic petrochemical industry’s overcapacity problem, improve the operating rates of retained production facilities, and drive the industry’s transition toward higher value-added products, with a focus on developing medical-grade low-density polyethylene, polyolefin elastomers, and other products.

South Korea’s Ministry of Trade, Industry and Energy said in a statement, “Following the Daesan and Yeosu projects, we will swiftly move forward with consultations on industrial restructuring in the Ulsan region.” ($1 = 1,482.71 won)