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.

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The Korean government has announced a comprehensive plan to enhance the competitiveness of the struggling petrochemical industry by supporting business restructuring, including the sale of businesses, mergers and acquisitions (M&A), and facility closures.

To mitigate the economic impact on local communities, the government will relax the criteria for designating "Industrial Crisis Response Areas" and implement other countermeasures.

The government will also strengthen support for research and development (R&D) to transform the domestic petrochemical industry into a high-value-added and eco-friendly sector, thereby enhancing its fundamental competitiveness.

On Dec. 23, the government unveiled the "Plan to Enhance the Competitiveness of the Petrochemical Industry" during the "Meeting of Ministers Related to Industrial Competitiveness Enhancement" presided over by Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok.

The government has identified the recent downturn in the petrochemical industry as a result of an oversupply caused by large-scale facility expansions in China and the Middle East. This oversupply is expected to worsen until 2028, prompting the government to prepare support measures to strengthen the industry's fundamental competitiveness in consultation with industry stakeholders.

To address the oversupply of petrochemical raw materials, the government will actively support business restructuring. The domestic petrochemical industry has traditionally grown by expanding exports through large-scale naphtha cracking center (NCC) facilities using cheap raw materials. However, this growth model has lost its competitiveness due to the expansions by latecomer countries such as China and the Middle East.

To encourage voluntary business restructuring by companies, including facility closures, business sales, joint venture establishments, facility operation efficiency improvements, and new business M&A, the government will implement various legal reforms and financial and tax support measures. For companies undergoing business restructuring, the grace period for acquiring 100% of the shares of a holding company will be extended from the current three years to five years, allowing buyers more time to comply with shareholding regulations after generating profits.

Additionally, the government will support pre-consultations with the Fair Trade Commission to expedite merger reviews for business sales, joint venture establishments, and new business M&A. The pre-review period for information exchange to improve facility operation efficiency will be reduced from the current 30 days to 15 days. A joint consultation channel will be operated between the Ministry of Trade, Industry and Energy and the Fair Trade Commission to support information exchange, expedited reviews, and other processes for industries identified as oversupplied.

The government will provide a total of 3 trillion won in policy financing to the petrochemical industry through loans and guarantees for business restructuring. In particular, access to 1 trillion won in business restructuring support funds will be expanded through the Korea Development Bank for companies pursuing business restructuring.
Lotte Chemical's plant in Daesan Petrochemical Complex, South Chungcheong Province (Lotte Chemical)
Lotte Chemical's plant in Daesan Petrochemical Complex, South Chungcheong Province (Lotte Chemical)

Regions expected to face economic difficulties due to petrochemical facility closures will be actively considered for designation as Industrial Crisis Response Areas. These areas are designated to minimize the negative impact on local economies through government-wide support when the main industries of a region are expected to deteriorate due to unforeseen domestic and international shocks. Once designated, companies in the affected industries can receive customized support in areas such as finance, employment stability, R&D, commercialization, market access, and consulting.

The government will relax the criteria for the number of employees, sales of employment retention support funds, and other conditions required for designation as an Industrial Crisis Response Area. Financial and guarantee support for partner companies and small businesses will also be strengthened. For designated areas, the government will enhance support by extending the maturity of existing loans from policy financial institutions, deferring principal repayments, extending the deadline for national tax payments, and deferring seizure and sale for up to one year.

For companies in designated areas that sell assets to repay financial debts or secure investment funds as part of their business restructuring plans, the tax deferral period for capital gains will be extended from the current four-year deferral and three-year installment inclusion to a five-year deferral and five-year installment inclusion. The government will also relax the criteria for employment retention support funds for partner companies with more than 50% of their sales related to petrochemicals in designated areas.

To reduce costs for the petrochemical industry and secure fundamental competitiveness, the government will extend the duty-free period for naphtha and crude oil used to produce naphtha by one year until the end of next year. It will also refund import surcharges on liquefied natural gas (LNG) used as industrial raw materials. Additionally, a "fast-track" approval process will be applied for the construction of ethane terminals and storage tanks, which some petrochemical companies are pursuing to introduce cheaper raw materials.

Other measures include refunding import surcharges on LNG used as industrial raw materials, expanding options for electricity rates through the activation of distributed power trading, and rationalizing safety regulations. The government will also support R&D to shift the production system of general-purpose petrochemical products, currently considered a "red ocean," to high-value-added "specialty" products.

To this end, the government will establish and announce an "R&D Investment Roadmap for 2025-2030" in the first half of next year and will pursue preliminary feasibility studies for high-value-added and eco-friendly chemical material technology development. Furthermore, the government will increase the support ratio for regional investment subsidies in Industrial Crisis Response Areas (from a maximum of 15% to 25%), identify national strategic technologies and new growth source technologies, and create a 50 billion won "High-Value Specialty Fund."

An official from the Ministry of Trade, Industry and Energy stated, "The petrochemical industry has been making self-rescue efforts and has sufficient will for business restructuring. The government plans to provide institutional support to facilitate this." The official added, "If the industry prepares business restructuring plans, the relevant ministries will promptly support them, and follow-up measures based on actual policy demand will be pursued in the first half of next year."