🚨 Yeosu Petrochemical Complex Restructuring
Today Korean Economic News for Beginners | 2025.08.11
0️⃣ Factories That Made Trillions in Profit Now Face Closure Crisis
📌 Korea's petrochemical industry in crisis due to low-price competition from China and Middle East, restructuring begins
💬 Korea's largest petrochemical complex in Yeosu is facing serious financial difficulties and production shutdowns. Boston Consulting Group (BCG) recently recommended in a report that Korea needs to reduce its ethylene production capacity by 24%, and 2-3 out of 7 factories in Yeosu complex, including Yeocheon NCC, may be forced to close. The petrochemical industry, which once generated trillions of won in annual profits and was called a "golden industry," now faces structural crisis due to China's 5-times larger production capacity and the Middle East's raw material cost advantage. With oversupply of general petrochemical products becoming long-term, the possibility of recovery to boom cycles is also becoming slim.
1️⃣ Easy Explanation
Korea's petrochemical industry is facing a major crisis. Factories that used to make lots of money are now in a situation where they might have to close down. Let's understand the reasons and background behind this.
The petrochemical industry is one of Korea's key manufacturing sectors. Yeosu, Ulsan, and Daesan are the three major hubs of this industry, with Yeosu complex being the largest in the country. These places produce products like ethylene, polypropylene, and TPA, which become raw materials for plastics, textiles, packaging materials, and all other products essential to daily life.
From the 2000s to the mid-2010s, this industry was like a "golden goose." As demand increased worldwide, Korean petrochemical products sold like hotcakes, and related companies made trillions of won in annual profits. The government also supported this industry generously, calling it an export champion.
But the situation has completely changed. The biggest change is China's rapid growth. China has built huge factories that can produce ethylene at 5 times the volume of Korea's production. They started flooding the global market with excess production at low prices after meeting their domestic demand.
Middle Eastern countries have also become serious competitors. Countries like Saudi Arabia and UAE operate super-large integrated plants that extract oil while simultaneously producing petrochemical products. Since they don't need to pay much for raw materials, they can supply products much cheaper than Korea.
In this situation, Korean petrochemical companies have become "sandwiched." They are losing ground between China's volume offensive and the Middle East's cost competitiveness. Especially for general products like ethylene and polyethylene, technical differentiation is difficult, leaving only price competition.
Boston Consulting Group analyzed this situation and made the harsh diagnosis that "Korea needs to reduce its ethylene production capacity by 24%." This means 2-3 out of 7 factories in Yeosu complex need to close down. In fact, Yeocheon NCC has already stopped operating 3 factories, and other companies are considering similar moves.
In the end, Korea's petrochemical industry is at a turning point where it needs to find new survival strategies instead of longing for past prosperity.
2️⃣ Economic Terms
📕 Petrochemical Industry
The petrochemical industry produces chemical products using petroleum or natural gas as raw materials.
- It produces various products from basic materials like ethylene and propylene to plastics, textiles, and rubber.
- It's called the "rice of industry" because it's the foundation for all manufacturing industries.
- Korea is the world's 4th largest petrochemical producer and this is one of our major export industries.
📕 Ethylene
Ethylene is the most basic raw material in petrochemicals and the starting point for most plastic products.
- It's a basic chemical substance made by breaking down naphtha at high temperatures.
- It becomes the raw material for various plastics like polyethylene and polystyrene.
- Ethylene production volume is a key indicator of a country's petrochemical industry size.
📕 Oversupply
Oversupply means there's much more supply than demand in the market, causing prices to keep falling.
- It happens when producers competitively increase production capacity, flooding the market with goods.
- Price drops hurt company profitability, and in severe cases, companies run at a loss.
- When it becomes long-term, restructuring and facility reduction become unavoidable.
📕 General Products
General products are standardized items mass-produced without special technology or differentiation.
- Many companies can make identical products because the technology barriers are low.
- Price competition becomes fierce because there's almost no quality difference.
- In petrochemicals, ethylene, polyethylene, and polypropylene are typical general products.
3️⃣ Principles and Economic Outlook
✅ Structural Changes in Global Petrochemical Markets
Large-scale expansions by China and the Middle East have completely changed the paradigm of the global petrochemical market.
First, China's overwhelming production capacity expansion is reshaping the market. Since the 2010s, China has focused national capabilities on developing the petrochemical industry. As a result, China's current ethylene production capacity reaches 45 million tons annually, 5 times Korea's 9 million tons. The bigger problem is that China plans to add another 20 million tons by 2030. Volumes that China's domestic market cannot absorb are being exported at low prices, driving down global prices. No matter how much Korean companies improve efficiency, they cannot withstand the volume pressure.
Second, the Middle East's cost competitiveness is structurally difficult to overcome. Large integrated complexes like Saudi Arabia's SADARA and UAE's Borouge have systems that process everything from oil production to final products in one place. Unlike Korea, which must purchase oil from the market, these countries can secure raw materials at almost cost level, giving them a $200-300 per ton advantage in production costs. This is a structural difference that cannot be overcome through simple efficiency improvements. Moreover, these countries are fostering the petrochemical industry as a strategic sector at the government level, so long-term investment and support will continue.
Third, Korea's technological advantage is limited in general product competition. The areas where Korea had competitiveness in the past were mainly general products like ethylene and polyethylene. However, as the technological barriers for these products have lowered, Chinese and Middle Eastern companies can now produce similar quality. Meanwhile, European, American, and Japanese companies still maintain technological superiority in high-value specialty chemical products, leaving limited room for Korea to enter. This is the structural reason why Korea's petrochemical industry finds it difficult to escape the "sandwich" situation.
Structural changes in the global petrochemical market require fundamental strategic transformation of Korea's industry.
✅ Inevitability of Restructuring and Industrial Reorganization
Let's analyze why restructuring in Korea's petrochemical industry is inevitable and how it will proceed.
First, facility closures are unavoidable due to declining operation rates and deteriorating profitability. Currently, Korea's petrochemical industry's average operation rate is around 70%, significantly below the optimal rate of 85%. Especially for ethylene crackers (decomposition facilities), the high proportion of fixed costs means they quickly turn to losses when operation rates drop. This is why Yeocheon NCC stopped operating 3 factories. BCG's 24% reduction recommendation is based on realistic demand forecasts, diagnosing that bold facility reduction is necessary to survive in the market. The industry expects similar moves to continue not only in Yeosu complex but also in Ulsan and Daesan.
Second, restructuring will go beyond simple facility closures to business portfolio reorganization. Companies are trying to reduce scale in general products while converting to high-value products instead. For example, SK Chemical is moving toward bio-plastics, and LG Chemical toward battery materials. There are also movements to shift from the existing mass production system to customer-specific small-volume, multi-variety production. This is not simply closing factories but changing the paradigm of the entire industry.
Third, the government is also preparing policies to support structural transformation of the petrochemical industry. The Ministry of Trade, Industry and Energy announced through the "Petrochemical Industry Advancement Plan" that it will support transition from general products to specialty chemicals and bio-chemicals. Specifically, the plan is to help improve the industry's constitution through expanding research and development (R&D) investment, promoting cooperation between companies, and supporting overseas expansion. However, such transformation requires considerable time and cost, and not all companies can succeed, so some companies will inevitably be forced out.
Restructuring is painful but an essential process for Korea's petrochemical industry to find new growth engines.
✅ Future Outlook and Survival Strategies
Let's comprehensively examine the long-term outlook for Korea's petrochemical industry and strategies for survival.
First, while additional restructuring is inevitable in the short term, there are also new opportunities in the medium to long term. More facility closures and workforce adjustments are expected over the next 2-3 years. However, strengthening global environmental regulations and eco-friendly trends can provide new opportunities for Korean companies. There's still room to secure technological advantages in areas like bio-plastics, recycled plastics, and eco-friendly chemical materials. Also, demand for high-performance chemical materials is expected to increase due to the growth of advanced industries like automotive, electronics, and medical.
Second, successful companies will build differentiated technological capabilities and customer-centered business models. Companies that move away from general products to develop specialty products for specific uses and build supply chains through close cooperation with customers will survive. For example, ultra-pure chemicals for semiconductors, specialty films for displays, and biomaterials for medical use are still areas that can guarantee high profitability. Building smart factories using digital technology to maximize production efficiency is also an important strategy.
Third, overseas expansion and global partnership expansion are also essential strategies. Since survival is difficult with only the domestic market, expansion into growth markets like Southeast Asia, India, and Africa is important. Especially, strategies to save transportation costs and increase market accessibility through local production are needed. Also, securing high-value technologies through technical cooperation or joint investments with advanced chemical companies in Europe and America is important. Combining Korean companies' production technology with advanced countries' research and development capabilities can create new synergies.
The future of Korea's petrochemical industry depends on qualitative transformation rather than past quantitative growth.
4️⃣ In Conclusion
The crisis at Yeosu petrochemical complex symbolizes the structural changes facing Korea's entire petrochemical industry. The days when it was called a "golden industry" and generated trillions of won in profits are now history, and we have reached a point where fundamental transformation for survival is necessary.
The core of this situation is global oversupply and changes in competitive dynamics. Between China's overwhelming volume and the Middle East's cost advantages, Korea can no longer compete using existing methods. Boston Consulting Group's 24% reduction recommendation coldly reflects this reality.
Some factory closures and unemployment will be inevitable during the restructuring process. 2-3 factories in Yeosu complex, including Yeocheon NCC, are likely to close, which will be a major shock to the regional economy. However, if we don't endure this pain, the entire industry could face even greater risks.
Fortunately, not everything is hopeless. Strengthening environmental regulations and eco-friendly trends are providing new opportunities, and there's still growth potential in high-value specialty chemical fields. The important thing is not to rest on past successes but to quickly adapt to changes.
The government should also shift policies toward supporting industrial advancement rather than simple bailouts. It's important to build the industry's self-reliance through expanding R&D investment, promoting cooperation between companies, and supporting overseas expansion.
In the end, this crisis is a turning point for Korea's petrochemical industry to move from the "era of quantitative growth" to the "era of qualitative transformation." Though painful, if we successfully navigate this process, we can be reborn as a more competitive and sustainable industry. Now is not the time to long for the past, but to prepare for the future.
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