Shutting down 1.39 million tons of ethylene in three years! South Korea’s largest petrochemical cluster restructuring approved—why is the entire South Korean petrochemical industry collectively undertaking self-rescue?

The ethylene produced by NCC—often dubbed the 'mother of the petrochemical industry'—has long served as a core indicator of a nation’s petrochemical industry scale. Ethylene’s downstream applications span hundreds of sectors, including packaging films, piping, automotive injection-molded parts, wires and cables, and construction materials. Shutting down 1.39 million tons of ethylene capacity entails far more than merely reducing olefin output—it undermines the raw material foundation for the entire downstream supply chain. That both the South Korean government and enterprises are willing to bear such a cost signals that the price of maintaining current operations has already become even higher. So what, exactly, is the cost of maintaining operations? Three interlocking pressures collectively constitute the fundamental rationale for restructuring. First pressure: Dependence on imported feedstock drives up costs. South Korea possesses virtually no domestic oil or gas resources; its NCCs rely heavily on imported naphtha—with import dependency reportedly exceeding 70%, according to industry data. Naphtha prices closely track international crude oil prices; when Middle Eastern geopolitical tensions pushed oil prices higher in early 2026, South Korea’s landed naphtha costs surged sharply, directly eroding corporate profits. More critically, China—leveraging its coal-to-olefins (CTO/MTO) route and integrated refining-and-petrochemicals system—enjoys significantly stronger naphtha self-sufficiency than South Korea, resulting in a more stable and resilient feedstock cost structure. Second pressure: China’s surging capacity is systematically shrinking traditional export markets. Historically, South Korean petrochemicals sustained high-cost operations through robust export demand. Yet publicly available industry data shows China’s total ethylene capacity has firmly secured the world’s top position, accounting for a substantial share of global capacity. Markets once highly dependent on South Korean imports—especially for bulk commodities like polyethylene and polypropylene—have now achieved near-total self-sufficiency; some categories have even turned into net exporters. South Korea’s largest customer has thus transformed into its fiercest competitor. The market isn’t shrinking—it’s being reallocated, and South Korea is losing its advantageous position in that reallocation. Third pressure: Under this three-pronged assault, South Korea’s overall cost competitiveness has completely collapsed. The Middle East’s ethane-based cracking facilities boast the world’s lowest ethylene production costs; China dominates through scale, integrated infrastructure, and deep domestic market penetration; and the U.S., powered by low-cost shale gas feedstock, likewise holds a decisive cost advantage. Yeosu Industrial Complex—being the largest in South Korea—bears the heaviest burden of overcapacity, making it the logical starting point for restructuring. In summary, South Korea’s petrochemical crisis stems not from individual corporate mismanagement nor from short-term market fluctuations—but from a structural problem: inherently high feedstock costs, replacement of its core market by China, and comprehensive loss of global cost competitiveness. Under persistent overcapacity, maintaining the status quo means continuous financial bleeding. Restructuring is not optional—it is the sole path to stop losses and survive. Japan and South Korea’s Petrochemical Industries Jointly Contract The Yeosu restructuring is no isolated event. Viewed within the global petrochemical landscape, it represents just one facet of a broader Japan–South Korea petrochemical contraction. In South Korea, multiple large-scale olefin units have already been shut down—or are slated for shutdown—in recent years, involving companies including LG Chem, YNCC, and Lotte Chemical, with a considerable aggregate volume of withdrawn or planned-to-be-withdrawn ethylene capacity. Adding the latest 1.39 million tons from Yeosu, South Korea’s total ethylene capacity reduction over recent years has further expanded.

[Semiconductor News | January 16 Nikkei Analysis]

Summary: Behind TSMC’s record-breaking capital expenditure announcement lies a telling shift in investment priorities. Beyond its home base in Taiwan, TSMC’s primary investment focus is now Arizona, USA—where it plans to build six advanced wafer fabs. According to The New York Times, as trade agreement negotiations between the Trump administration and Taiwan deepen, TSMC may be compelled to commit to building at least five additional factories in the U.S. This aggressive overseas expansion aims both to respond to intensifying U.S.–Korea competition—Samsung and Intel are also building 2nm fabs in the U.S.—and to hedge against geopolitical risks. Yet, while AI-related orders remain highly profitable, the high operating costs and potentially low gross margins of U.S. fabs pose unavoidable challenges. Simultaneously, balancing resource allocation between surging AI demand and shrinking automotive demand has emerged as a new strategic dilemma for TSMC’s management. Author’s Insight: Gross margin for chip manufacturing in Taiwan stands at 60%, whereas in the U.S. it may fall to only 10%–20%—or even turn negative. Committing to five more U.S. fabs is, in essence, TSMC’s ‘letter of allegiance’ and ‘protection fee’ paid to the United States. This will dilute TSMC’s ROE over the long term. Yet for customers, paying this premium is a necessary cost for supply-chain security. Though TSMC currently leads technologically, both Samsung and Intel plan to mass-produce 2nm chips in 2026. If TSMC fails to expand U.S. manufacturing, the U.S. government could tilt subsidies and tariff policies toward Intel. TSMC must guard not only against technological rivals—but also against political ones. For investors, although yesterday’s financial report delivered strong results, the long-term outlook suggests that the higher TSMC’s U.S. capacity share grows, the greater the drag on its overall profitability. Is South Korea’s chemical industry collapsing? LG and Lotte forced to cut 30% of ethylene capacity! China’s capacity shockwave proves too powerful. Summary: Facing immense pressure from China’s rapid capacity expansion, South Korea’s petrochemical industry is entering its darkest hour: giants including Lotte Chemical and LG Chem have decided to slash domestic ethylene capacity by 30% starting in 2026. LG Chem CEO Dong-chun Kim candidly admitted the company’s dire situation—the petrochemical business, though marginally profitable, has posted losses for four consecutive quarters; Lotte Chemical’s basic chemicals division has suffered losses for ten consecutive quarters. The root cause lies in corporate sluggishness in responding to shifting market conditions: China’s explosive growth in ethylene capacity has driven prices into prolonged depression, compounded by weak domestic demand in South Korea.

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