Korea to ease rules for petrochem industry M&As, plant closures

South Korea will ease regulations and offer incentives to facilitate the restructuring of domestic petrochemical makers battling a global supply glut and overcapacity in China and the Middle East, said the Ministry of Economy and Finance on Monday.

The government hopes a relaxation in the rules will spur these companies' mergers and acquisitions and plant closures and allow them to shift into high-end, specialty chemicals such as copolyesters and acrylonitrile butadiene styrene (ABS) and away from basic chemicals such as ethylene.

As South Korea’s leading petrochemical companies are forecast to swing to losses this year, Finance Minister Choi Sang-mok announced a string of measures to bolster the sector's competitiveness at a ministerial meeting.

The measures include providing 3 trillion won ($2.1 billion) in policy financing such as low-cost loans and payment guarantees for plant shutdowns and sales. Such incentives will also be offered to future joint ventures and M&A deals.

Additionally, the government will extend the suspension of import tariffs on naphtha, feedstock for petrochemical products, and oil used at naphtha cracking centers (NCC) by one year to the end of 2025.

It will refund import duties charged on liquefied natural gas used for industrial materials.

The Korea Fair Trade Commission also pledged to review their M&As and plant closures faster than normal.

The measures were unveiled as Korean petrochemical makers are striving to jettison their basic chemicals plants to stem losses. 

The country's four largest petrochemical manufacturers – LG Chem Ltd., Lotte Chemical Corp., Kumho Petrochemical Co. and Hanwha Solutions Corp. – reported consolidated losses of a combined 417.0 billion won in the third quarter. That compared with the 39.0 billion won shortfall in the fourth quarter of 2023.

The industry is watching closely to see whether such policy efforts will lead to the shutdown or sale of Yeochun NCC (YNCC), the country’s No. 3 ethylene producer.

Restructuring the loss-making joint venture between Hanwha Solutions and DL Chemical could trigger a shake-up in the sector, said some industry officials.

But Hanwha and DL are said to have no plans to sell YNCC in the immediate future.

Those industrial officials pointed out that the government measures are not attractive enough to lead to voluntary production cuts.

Further, a rebound in ethylene margins, which have more than doubled over the past two months, could delay their restructuring.

“We’re stuck in a dilemma where one company’s production cuts benefit another,” said an industry official. "To facilitate M&As, we need stronger incentives.”

Write to Kyung-Min Kang and Hyung-Kyu Kim at Kkm1026@hankyung.com
 


Yeonhee Kim edited this article.