The "Daesan No. 1 Project," a restructuring plan for Korea's petrochemical industry approved by the government on the 25th, outlines corporations presenting self-rescue measures for coexistence, with the government providing support. The corporations concerned, including Lotte Chemical, HD Hyundai Chemical, and HD Hyundai Oilbank, expect the pace of business restructuring to accelerate as government support coincides with their shift toward high value-added businesses.
On the 25th, the government held a meeting of ministers on economic affairs and a meeting of ministers on strengthening industrial competitiveness, and finalized the agenda item titled "approval of the Daesan No. 1 Project business restructuring."
To improve the fundamentals of the oversupplied petrochemical industry, HD Hyundai Chemical and Lotte Chemical plan to integrate the Daesan business sites and shift toward high value-added, eco-friendly industries. During the restructuring period, Lotte Chemical will halt operations of its aging naphtha cracking center (NCC), and the two corporations will also scale down and operate their general-purpose downstream facilities.
In particular, the petrochemical industry is focusing on the government's financial support. Petrochemical corporations have suffered severe cash shortages as losses became entrenched. As Chinese petrochemical corporations sold products using cheaper feedstock, domestic corporations have faced a prolonged "negative margin" situation where selling products failed to generate profit.
As earnings worsened, credit rating agencies successively downgraded the credit ratings of petrochemical corporations. When credit ratings fall, it becomes harder to raise funds, as corporations must pay higher interest to borrow in the market or may not be able to issue bonds at all. As a result, petrochemical corporations have survived by selling prime assets or rolling over short-term funds.
If the financial package of up to 2 trillion won proposed in Daesan No. 1 is executed, corporations are expected to get breathing room in cash management. Existing loans will be converted into perpetual bonds, with about 1 trillion won of liability turning into capital, improving financial soundness.
The industry expects restructuring to gain momentum as the government decided to provide up to 1 trillion won in funding just as production of general-purpose products is being cut and a shift toward high value-added businesses is underway. HD Hyundai Oilbank and Lotte Chemical decided to inject 600 billion won each, totaling 1.2 trillion won, to upgrade facilities and develop new businesses.
Daesan No. 1 will push production of new businesses such as high-resilience plastics and core materials for secondary batteries. Thanks to the restructuring effects, the integrated entity is expected to return to profit in 2028. The government's position is to actively support the Ulsan and Yeosu complexes so each business site can produce high value-added products where it has an edge.
Government support measures for the Ulsan and Yeosu complexes will be announced sequentially. Since the government's support package has been fully concentrated on the Daesan complex, which first submitted a restructuring plan, support measures for the Ulsan and Yeosu complexes are expected to be finalized by selecting what each complex needs based on Daesan No. 1.
However, Ulsan faces a variable as S-Oil's "Shaheen Project" is set to start operations within the year. The Shaheen Project is a project in which S-Oil is investing 9 trillion won to build production facilities for petrochemical products such as ethylene in the Ulsan area. If the Shaheen Project comes online while other corporations are accepting losses and cutting facilities, concerns are being raised that it will cause an ethylene oversupply.
An industry official said, "Because the government's full support package came out for Daesan No. 1, which first submitted a restructuring plan, there are views that it will be hard to roll out support at a similar level in the next regions," adding, "As the government accepted most of the industry's requests, corporations should diligently carry out their self-rescue plans going forward."
The Korea Chemical Industry Council issued a statement that day regarding the government's approval of the Daesan No. 1 Project, saying, "To overcome the crisis, not only private-sector self-rescue efforts but also effective government support are needed," and, "We hope this approval will serve as an important primer for the spread of restructuring and that continued policy support will follow."