Another government-incentivized petrochemical overhaul takes shape as Yeosu plants brace for shutdown

South Korea's government has cleared a second industry-led restructuring plan for its petrochemical sector, approving the "Yeosu Project No. 1" as producers grapple with prolonged global oversupply. The Ministry of Trade, Industry and Resources confirmed Wednesday it had approved plans submitted by Yeochun NCC, Lotte Chemical, Hanwha Solutions and DL Chemical, which will cut annual naphtha cracking capacity by 1.4 million tons through plant consolidation in Yeosu, South Jeolla Province. In exchange, the government will provide 700 billion won ($473 million) in financial, tax and R&D support.

The plan centres on a new joint venture merging Yeochun NCC, co-owned by Hanwha Solutions and DL Chemical, with Lotte Chemical's Yeosu plant, with each partner holding an equal 33.3% stake. Hanwha Solutions and DL Chemical will each contribute 272.5 billion won ($184 million), jointly injecting 545 billion won ($368 million) to retire Yeochun NCC's debt, plus a further 253.2 billion won ($171 million) into facility upgrades, bringing their total self-funded commitment to 800 billion won ($541 million).

As part of the consolidation, Yeochun NCC will shut its No. 2 and No. 3 plants, removing roughly 1.39 million tons of cracking capacity annually. The companies plan to pivot toward higher-margin, specialty output, including medical-grade LDPE and polyolefin elastomer used in medical, food and hygiene adhesives.

The government's 700 billion won ($473 million) support package is anchored by 450 billion won ($304 million) in fresh financing from creditor banks led by the Korea Development Bank, alongside debt deferrals, plus 200 billion won ($135 million) in expanded import insurance from the South Korea Trade Insurance Corporation. Seoul will also ease merger and spinoff related tax burdens and allocate 34 billion won ($23 million) to R&D in advanced chemical materials.

The Yeosu approval builds on February's "Daesan Project No. 1," a joint venture between Lotte Chemical and HD Hyundai Oilbank that cut 1.1 million tons of capacity. Together, the two projects account for 2.49 million tons of reductions, about 68% of the government's 3.7 million ton target, prompting the Korea Chemical Industry Association to say the move should help ease domestic oversupply and restore the industry's global competitiveness.

Attention now turns to the Ulsan petrochemical complex, where restructuring talks have lagged as SK Geo Centric, Korea Petrochemical Ind. and S-Oil show less urgency amid improved earnings and disagreement over cut sizes. Complicating matters, S-Oil is set to launch full operations next year at its 9 trillion won ($6.08 billion) Shaheen Project, expected to add 1.8 million tons of ethylene capacity annually, nearly half the government's nationwide reduction goal, while LG Chem and GS Caltex have yet to submit final plans.

The Ministry of Trade, Industry and Resources urged remaining producers to fall in line, saying restructuring "must" involve all industrial complexes "without free-riding," and pledged to accelerate Ulsan talks so South Korea's petrochemical industry can "regain its competitiveness and resume growth."

Written by: Farid Muzaffar