Silence at shuttered petrochemical facilities draws louder calls for gov't intervention

The Yeochun NCC Plant 3 in Yeosu, South Jeolla, is shut down on Aug. 21. This facility, which had an annual production capacity of 480,000 tons of ethylene, recently shut down amid an industry-wide lag. [KIM SU-MIN]

 
Korea’s petrochemical hubs in Yeosu and Daesan are sinking into crisis. Shuttered plants, plunging profits and layoffs are rippling through local economies, as experts warn that only government-driven restructuring — not voluntary corporate steps — can resolve the downturn.
 
On Aug. 21, Yeochun NCC’s Plant No. 3 in the Yeosu National Industrial Complex, South Jeolla, stood silent. Just a month earlier, the facility had roared like a jet engine. Now, wind and dust drifted through the observation port that would normally be sealed against 1,200-degree Celsius (2,192-degree Fahrenheit) heat.
 

Related Article

• Korean government plans petrochemical industry restructuring for growth

• 'It's a matter of survival now': Petrochemical firms grapple with government crackdown

• Petrochemical firms ordered to slash production, show 'self-help efforts'

• As Korean petrochemical industry faces collapse, gov't jumps into action

 
Yeochun NCC, Korea’s third-largest ethylene producer, suspended operations at the plant on Aug. 8. The facility was responsible for 20 percent of the company's annual output, about 480,000 tons. Production is now consolidated at Plants Nos. 1 and 2 to cut labor and electricity costs. The company posted a 156.7 billion won ($112.5 million) loss in the first half of the year.
 
The Yeosu complex is tightly woven by pipe racks linking Yeochun NCC, GS Caltex, Lotte Chemical, LG Chem and other major players. Most run naphtha cracking centers (NCCs) that produce ethylene and base petrochemicals. GS Caltex also operates a mixed-feed cracker at the site.
 

 
The mood in Daesan, South Chungcheong, is no better. NCC operating rates there have dropped from above 90 percent in 2021 to the 70 percent range last year, according to the Korea Chemical Industry Association. Lotte Chemical, HD Hyundai Chemical, LG Chem and Hanwha TotalEnergies all run NCC plants clustered within minutes of one another.
 
The industry has suffered from oversupply out of China since 2022. Global ethylene supply now exceeds demand, with prices sliding from $1,046.67 per ton in 2021 to $863.06 last year. Yet Korean producers keep churning out the same products in adjacent plants, rather than consolidating.
 

A notice is posted at a store in Daesan, Seosan, South Chungcheong, stating that the property was being sold without rights, management fees or value-added tax, on Aug 21. [NA SANG-HYEON]

 
Subcontract workers are being hit the hardest.
 
Jo Yeong-geun, 58, recalled Yeosu’s “golden age,” when work was plentiful. “At busy times, I had jobs lined up for 20 days a month,” he said. Since April, Jo has had no steady work, surviving on 1.8 million won a month in unemployment benefits while supporting two children. He took his first credit card loan in April — five million won — and now rolls over the balance with no clear end.
 
 
The crisis is rippling across local economies. Tax revenue in Yeosu fell 26.8 percent year on year, and in Seosan, home to the Daesan complex, revenues dropped 19.7 percent. “The Daesan complex makes up about 80 percent of Seosan’s economy, so the downturn is hitting us directly,” a city official said.
 
Analysts say the old petrochemical cycle has been broken.
 

 
“If selling to China becomes impossible, Korea will face chronic oversupply,” said Lee Eun-young, managing director at Samil PwC Business Research. “Consolidation of NCC facilities in Ulsan, Yeosu and Daesan will be unavoidable.”
 
The combined operating profit of Korea’s top 10 petrochemical firms — 9.46 trillion won in 2021 — collapsed into a 1.49 trillion won loss last year. But restructuring remains stalled. Yeochun NCC’s co-owners, Hanwha and Daelim Industrial Chemical, are locked in disputes over ethylene pricing. Lotte Chemical and HD Hyundai Chemical have failed to agree on valuations in talks to merge their Daesan plants. Companies also fear joint decisions on output or pricing could trigger antitrust scrutiny.
 

White steam rises from the Yeosu National Industrial Complex in Yeosu, South Jeolla, where petrochemical companies are concentrated, on Dec. 7, 2020. [YONHAP]

 
The government has urged “self-rescue efforts” before state intervention, calling for voluntary measures by the year’s end. On Aug. 20, the Ministry of Trade, Industry and Energy proposed cutting ethylene capacity by 2.7 to 3.7 million tons, or 18 to 25 percent of national output.
 
Industry leaders are skeptical. “It’s no different from now,” said one executive. “The government needs to take the lead and draw the line.”
 
The government has begun emergency measures, designating Seosan as a pre-emptive industrial crisis response zone last Thursday, following Yeosu earlier in the month. Support will run through August 2027, including emergency stabilization loans, preferential subsidies for local investment and enhanced policy financing for small- and medium-sized businesses. But experts caution these are temporary painkillers, not long-term cures.
 

A view of the Daesan Petrochemical Complex in South Chungcheong, home to major petrochemical firms including LG Chem, Lotte Chemical and HD Hyundai Chemical [YONHAP]

 
“It’s far too late — the petrochemical downturn has been warned about for a decade,” said Kim Jeong-hwan, head of the Yeosu branch of the Korean Plant Construction Workers Union under the Korean Confederation of Trade Unions. “Still, the government must at least show the will to save the industry.”
 
Lee Duck-hwan, emeritus professor of chemistry at Sogang University, argued that the government must take a stronger role.
 
"For the past three years, the government has effectively done nothing. Now it must at least provide concrete guidelines," Prof. Lee said.
 
“Refiners and petrochemical firms alike lack investment capacity,” said Yoo Seung-hoon, a professor of energy policy at Seoul National University of Science and Technology. “The government must selectively back companies that successfully restructure with aggressive investment and financing support.”
 
Others call for urgent short-term relief.
 
“Petrochemical companies have been posting losses for three years, and operating rates have fallen to the point they cannot cover fixed costs,” said Lee Jin-myung, an analyst at Shinhan Investment & Securities. “What is needed now are concrete emergency measures such as short-term liquidity support and tax relief.”
 
"The first step is to ease supply-demand imbalances by reducing ethylene output and offsetting accumulated losses," he added.


This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM KI-HWAN, NA SANG-HYEON, KIM SU-MIN [lim.jeongwon@joongang.co.kr]