SEOUL: South Korea’s government will announce a plan this month to restructure the country’s petrochemical sector, which is in a “grave” situation, Industry Minister Kim Jung-kwan said on Thursday (Aug 14).
South Korean petrochemical companies must take lessons from the restructuring of the country’s shipbuilding industry in the late 2010s, when shipmakers had to liquidate assets and streamline business areas during a period when they faced a sharp drop in orders, Kim said.
Kim, who was speaking at a shipyard, said the petrochemical industry needed to take voluntary measures, including the “adjustment” of facilities, his ministry quoted him as saying.
There have been concerns over the financial health of South Korea’s loss-making Yeochun NCC Co (YNCC), a Yeosu-based petrochemical maker, which media reports said faced about 180 billion won (US$130 million) in loans coming due at the end of August.
Margins have plunged for petrochemical companies in South Korea and across the globe due to an oversupply of oil products caused by relentless capacity additions in the last decade, particularly in the biggest petrochemical market China. Demand has also been sluggish in the last three to four years.
Analysts say the industry does not expect global petrochemical margins to recover before 2027.
South Korea’s government can use YNCC’s travails as an opportunity for a large-scale restructuring in the industry, said Hwang Kyu-won, an analyst at Yuanta Securities Korea.
“A restructuring in the petrochem industry has been highly expected, given the industry is running merely 80% of total capacity in Korea now – meaning we have about a 20 per cent glut here,” Hwang said.
President Lee Jae Myung, who took office after a snap election in June, pledged during the campaign to pursue legislation with tax support for mergers and acquisitions in the petrochemical industry, and to exempt companies from some antitrust regulations to allow more coordination of production and operations.
The last major restructuring for South Korea’s petrochemical industry was in 1999 during the Asian Financial Crisis, when YNCC was formed.
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