Yeochun NCC, the third-largest ethylene producer in Korea, known as the 'rice of industry', is facing bankruptcy due to disagreements over funding with Hanwha Solutions and DL Chemical, both of which own 50% equity. The government has been emphasizing voluntary restructuring, taking a step back, but voices in the industry are calling for government intervention like in Japan.
According to the petrochemical industry on the 11th, Yeochun NCC has suspended operations at its Yeosu Plant No. 3 since August 8 due to worsening earnings. If it fails to secure funds to repay 310 billion won by the 21st of this month, it will face bankruptcy. Yeochun NCC requested 150 billion won each from Hanwha Solutions and DL Chemical in June. Hanwha is in favor of providing support, while DL Chemical has expressed reservations. DL Chemical held an emergency board meeting that day to discuss capital enhancement for Yeochun NCC. The two companies had previously invested 100 billion won each in March.
The Korean petrochemical industry purchases naphtha, a raw material for ethylene, from domestic refiners or overseas and produces ethylene at NCC plants to sell. The industry was prosperous until the COVID-19 period, but began to face difficulties as China and the Middle East initiated large-scale facility expansions. Last year, LOTTE Chemical recorded an operating loss of 894 billion won, while Hanwha TotalEnergies (204.7 billion won), Yeochun NCC (150.3 billion won), and HD Hyundai Chemical (150.2 billion won) also recorded consecutive losses.
The government hopes that the petrochemical industry will voluntarily engage in restructuring. In December last year, during the presidency of Yoon Suk-yeol, the government prepared a plan to enhance the competitiveness of the petrochemical industry, but detailed measures have not emerged as the presidential election was held and the new government was inaugurated.
The petrochemical industry is making efforts to devise self-rescue measures, but no results are emerging that would overturn the industry situation. LOTTE Chemical is working on improving its financial structure by selling overseas assets. LG CHEM is pushing for the sale of its Yeosu NCC Plant No. 2, but has not reached a final sale. While signs have been detected that corporations with NCC facilities in petrochemical industrial complexes such as Yeosu, Ulsan, and Daechon are trying to merge or consolidate facilities to reduce ethylene production, negotiations appear to be stalling.
There are opinions in the petrochemical industry that a government-led overhaul should be implemented like in Japan. The Japanese government has pursued structural reforms in the petrochemical sector since the early 1990s, aiming to reduce production capacity of generic products and enhance competitiveness through corporate integration.
At that time, Japan's Ministry of International Trade and Industry (now the Ministry of Economy, Trade and Industry) formulated a 'petrochemical reorganization plan' aimed at reducing ethylene production capacity by more than 10% and recommended mergers and shutdowns of major petrochemical corporations. As a result, Mitsubishi Chemical was formed through the merger of Mitsubishi Chemical Corp. and Mitsubishi Petrochemical, and Mitsui Toatsu and Mitsui Petrochemical merged to create Mitsui Chemicals.
A representative from the petrochemical industry said, "There is a great sense of crisis that if we entrust restructuring to corporations with conflicting interests, we will miss the opportunity and face extinction," and added, "Many believe we should refer to Japan's case where government-led restructuring helped overcome crises."