The business restructuring agreement signed by 10 major South Korean petrochemical companies commits them to making efforts to reduce their naphtha cracking (NCC) capacity by 3.7 million tons

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On the 20th of the month, 10 major South Korean petrochemical companies signed an agreement regarding business restructuring, which includes a significant reduction in petrochemical production capacity. 　　According to Yonhap News, South Korea’s Deputy Economy Minister and Minister of Planning and Finance, Ku Yun-taek, held a meeting on the 20th with officials from relevant departments under the theme of the petrochemical industry, taking action to address the crises facing this industry due to global overproduction and declining competitiveness. 　　Koo Jun-tae said that there are already signs of an oversupply in the global petrochemical industry, yet Korean companies are increasing their production capacity, even missing out on opportunities to create higher added value, which is putting them in a difficult position. Only by cutting overcapacity and fundamentally improving competitiveness can the crisis be overcome. 　　Joo Won-taek called on the industry to proactively and swiftly formulate specific restructuring plans, promising that the government would not stand idly by but would assume its proper responsibilities. 　　According to South Korea’s Chosun Ilbo, the business restructuring agreement signed by 10 major petrochemical companies commits them to reducing their naphtha cracking (NCC) capacity by 3.7 million tons, which corresponds to 25% of South Korea’s total capacity (14.7 million tons). 　　The structural adjustment of the petrochemical industry proposed by the South Korean government focuses on three main areas: reducing excess production capacity and shifting to products with higher added value, improving the financial health of enterprises, and minimizing the impact on the economy and employment. 　　The South Korean government has asked 10 companies to submit detailed plans by the end of the year. South Korea has clearly stated the principle of \"self-help first, government support later\". This means that if the industry takes the initiative to reduce production and pursue mergers, acquisitions, and facility consolidation, the government will support such actions through policies such as deregulation, financial incentives, and tax benefits. 　　In recent years, due to oversupply caused by continuous capacity additions, profit margins have plummeted. As a result, South Korea’s petrochemical industry is facing the most severe survival crisis in recent memory. 　　For instance, in March this year, the Yeochon Naphtha Cracking Center received 200 billion Korean won (approximately 1,000 Korean won equals 5.2 Chinese yuan) in funding from its two major shareholders, Hanwha Group and DL Group. Less than half a year later, it requested an additional 300 billion Korean won in assistance. Due to its excessive reliance on stable ethylene production, the company has posted losses consecutively since 2022, with cumulative losses reaching 820 billion won. 　　Crises are not isolated cases. In the Ulsan Industrial Complex in South Korea, where petrochemical companies are concentrated, the operation rate dropped from 87% in 2021 to 78.5% last year, and further fell to around 60% this year. 　　A report released by Boston Consulting Group (BCG) warns that if the downturn in the petrochemical industry persists, half of South Korea’s companies will be unable to continue operating within three years. To save the entire industry, South Korea must reduce its domestic production capacity by 24%.