[Editorial] First petrochemical restructuring project approved: reins must be tightened with speed and innovation

South Korea’s petrochemical industry, which had been driven to the brink by oversupply from China, has finally taken the first step toward restructuring. On the 25th, the government approved the "Daesan No. 1 Project," centered on the consolidation and integration of the Daesan plants of HD Hyundai Chemical and Lotte Chemical. A major achievement is the decision on a financial and tax support package worth 2.1 trillion won. The package is being positively received because it comprehensively tailors the support measures the industry has been calling for, including new funding, perpetual bond conversion, and debt repayment deferrals.
If the plan had focused only on consolidating overlapping facilities and providing liquidity support, it would have faced strong criticism. Fortunately, it is being assessed as a structural prescription that targets both the financial stability of the new integrated entity and the normalization of its business. The project carries particular significance as the first outcome reached after lengthy consultations between the government and the industry.
However, it is too early for self-congratulation. This is merely the first button fastened, and there is still a long way to go with many issues to address. Even the first project itself will take considerable time to be fully implemented. A series of procedures, including the merger agreement, corporate split, and establishment of the new integrated company, will continue through September. Even if everything proceeds smoothly as planned, it will still take a long time to complete facility rationalization and shift the portfolio toward high value-added products.
A bigger problem is that many additional tasks remain beyond the first project. A total of five business restructuring plans have been submitted to the Ministry of Trade, Industry and Resources. Excluding the Daesan No. 1 Project approved this time, the remaining four projects are about to submit their detailed plans. Even in the process of resolving the first project, it took a long time due to the two merging companies watching each other and prolonged discussions over government support measures.
The remaining restructuring projects also involve complex, intertwined interests among participating companies. The successful conclusion of negotiations on the first project is expected to have a positive impact on the others. Even so, companies will not easily yield on matters directly tied to their interests. Their negotiations will be anything but smooth, and it is impossible to predict when agreements will be reached.
Even if all five projects are completed successfully, doubts may still linger. It is far from certain how substantial the impact of this restructuring will be. The global petrochemical market must recover before the benefits of restructuring can fully materialize. Moreover, while we are undertaking large-scale restructuring, China’s expansion in the global market will likely accelerate further. This is not an issue that can be solved by our efforts alone; we must carefully gauge the pace at which our competitors are advancing. In reality, China continues to expand its petrochemical production capacity by mobilizing massive state capital.
If the five restructuring projects amount to nothing more than temporary stopgap measures, all these efforts could come to nothing. The reins of structural reform must be tightened with a long-term perspective, so that the industry can build genuine global competitiveness.
Ultimately, the keys to restructuring the domestic petrochemical sector are speed and innovation. Following the first project, subsequent projects must proceed without delay so that the overall blueprint for restructuring can be completed quickly. Any loss of time will cause us to fall further behind the pace of competition from China and the Middle East. At the same time, each company must not loosen its grip on continuous technology development and business innovation throughout the restructuring process. The government also has a heavy responsibility. It must not relax after approving the first project, but continue to actively mediate and support the submission of detailed plans and negotiations for the follow-up projects.