[Lessons from Others] Can Stones from Other Mountains Polish Jade? Examining South Korea’s Petrochemical Industry Restructuring Policy—Are These Stones or Genuine Jade?

Faced with massive shocks from global capacity expansion—and compounded by industry-wide losses—the South Korean petrochemical industry once again stands at a historic crossroads. On August 20, 2025, under strong government impetus, ten major South Korean chemical enterprises—including LG Chem, Lotte Chemical, and SK—signed a 'Voluntary Business Restructuring Agreement,' pledging to cut 3.7 million tons of naphtha cracking capacity. All companies must submit concrete production-cutting plans by the end of 2025; the government will provide supporting measures following the principle of 'self-rescue first, then assistance.' I. Survival Crisis Driven by Years of Losses The South Korean petrochemical industry has fallen into its most severe crisis in decades. Data show that the operating profit margin of South Korean petrochemical firms plummeted from 12.2% in 2021 to just 2–3% in 2024, with some companies suffering severe losses for multiple consecutive quarters. In Q2 2024, an LG Chem subsidiary posted a profit of KRW 46 billion; in Q2 2025, it recorded a loss of KRW 90 billion (approximately USD 63.3 million). Lotte Chemical reported a net loss of KRW 4.71 trillion in Q1 this year—far exceeding last year’s Q1 loss of KRW 1.07 trillion. At the Yeocheon National Industrial Complex in South Korea, plant utilization rates dropped from 87% in 2021 to 78.5% in 2024—and further fell to around 60% in 2025. Boston Consulting Group warned that, without restructuring, half of South Korea’s petrochemical firms could go bankrupt within three years. II. Root Cause: Global Overcapacity The core cause of South Korea’s petrochemical crisis lies in global supply-demand imbalance—especially intensified competition due to substantial new capacity additions across Asia. Since 2020, China has added significant new capacity to achieve its target of over 70% self-sufficiency in energy and chemical products. These newly built facilities feature integrated, full-industry-chain operations, more advanced technologies, and lower costs—giving them clear competitive advantages. While South Korean industry blames China’s rapid capacity expansion for its crisis, this author contends the fundamental issue is South Korea’s inherently small domestic market. Most of its output must be exported; once importing countries achieve self-sufficiency, demand naturally collapses. Overcapacity is not limited to Asia—it is a global imbalance. In 2024, South Korea’s petrochemical exports totaled USD 48 billion—7% of its total exports. In the first half of 2025, petrochemical exports amounted to USD 21.7 billion—a 11.1% decline year-on-year. III. Government Intervention: Three Main Threads and Three Principles Facing this unprecedented crisis, the South Korean government has recently demonstrated firm resolve. It requires enterprises to adhere to the principle of 'self-rescue first, then assistance'—only those submitting realistic and feasible restructuring plans will qualify for government support. This round of restructuring follows three main threads: cutting excess capacity, shifting toward high-value-added products, and ensuring financial health—while minimizing adverse impacts on local economies and employment. The three principles for receiving government support are: synchronized structural adjustments across the three major petrochemical industrial parks (Ulsan, Daesan, and Yeocheon); enterprises must first pursue self-rescue and then submit practical, actionable restructuring plans; and the government will provide complementary policy support. All enterprises have committed to submitting comprehensive business restructuring plans by the end of 2025—covering facility shutdowns or integration, product portfolio upgrades, and financial optimization strategies.

Lotte Chemical Produces Polycarbonate (PC) Using Recycled Naphtha

Recently, South Korea’s major chemical company Lotte Chemical announced it has produced polycarbonate (PC)—a high-value-added petrochemical product—using recycled naphtha derived from pyrolysis oil of waste plastics. Polycarbonate made from recycled naphtha exhibits excellent impact resistance, heat resistance, and transparency, making it suitable for applications in motors, electronics, home appliances, and automotive headlamps. Pyrolysis is a chemical recycling process that converts plastics into high-quality oil using extremely high temperatures and pressure. The recovered oil is refined into middle distillates and light distillates. Previously, pyrolysis oil was not used as a feedstock for petrochemical production due to concerns about impurities and air pollution. After undergoing post-treatment processes to remove impurities, waste plastic pyrolysis oil can be recovered and reused as naphtha—the fundamental feedstock for petrochemical products. Lotte Chemical receives waste plastic pyrolysis naphtha from Hyundai Oilbank, a petroleum refining subsidiary of Hyundai Heavy Industries Group, and feeds it into the naphtha cracker center at its Yeochon factory—a major industrial port city in southern South Korea.

Lotte Chemical Suspends Ulsan PET Recycling Project

Sep 30, 2026

Lotte Chemical has suspended its $12 million investment in a Ulsan chemical PET recycling plant due to worsening market conditions and industry restructuring. The company may resume the project if market fundamentals improve.

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