South Korea approves over $1.46 bil aid package for petrochemical sector

South Korea has approved its first support package for the struggling downstream industry by signing off on a Daesan complex integration plan involving the country's third-largest oil refiner, Hyundai Oilbank; its petrochemical joint venture, Hyundai Chemical; and Lotte Chemical, the Ministry of Trade, Industry and Resources said Feb. 25.

The first support project under the petrochemical restructuring road map, called the "Daesan No.1" plan, will see the government roll out a tailored aid package worth more than Won 2.1 trillion ($1.46 billion) to drive capacity reductions and enhance the sector's economics and competitiveness, the ministry said in a statement.

At the core of the "Daesan No.1" plan is a corporate reorganization that will split Lotte Chemical's Daesan operations and merge them with Hyundai Chemical, consolidating the naphtha cracking center and downstream units under an integrated operating structure, the ministry added.

The government framed the move as a direct response to oversupply and weak margins, committing to shut a 1.1 million metric ton/year ethylene unit -- Lotte Chemical's NCC -- over the three-year reorganization period.

The need for government support became increasingly urgent after Yeochun NCC, South Korea's third-largest ethylene producer, faced financial difficulties and narrowly avoided default in August 2025.

Feedstock economics, competitiveness

MOTIR said the plan aims to improve feedstock crude oil and naphtha economics by cutting raw-material and energy input costs and establishing a more efficient, vertically integrated operating model.

On the policy side, the government's cost-competitiveness package includes extending the 0% tariff period for crude oil and naphtha, broadening quota tariffs for crude oil used in naphtha production through 2026 and easing other input costs such as electricity, steam and fuel LNG to reduce the delivered cost of petrochemical production, the ministry added.

South Korea is Asia's largest naphtha importer, having purchased 237.5 million barrels in 2025 -- down 3.7% from the 246.7 million barrels imported in 2024 -- the latest data from state-run Korea National Oil Corp. showed Jan. 27.

Beyond near-term cost relief, the plan also seeks to boost overall competitiveness by enabling refining-petrochemical vertical integration and promoting a shift toward higher-value, lower-carbon products.

"Integration improves feedstock crude and naphtha sourcing stability and allows companies to flex production between refining and petrochemicals depending on refining margins and naphtha spreads, supporting profitability through the cycle," MOTIR said.

The government also plans to offer operating-cost relief covering power, steam, LNG and feedstock.

One notable measure is access to electricity priced 4%-5% below state-run utility Korea Electric Power Corp. rates, the ministry said, adding that it expects Won 69 billion-115 billion ($47.9 million-$79.9 million) in support, along with additional assistance through these measures.

Funds, ownership structure

The integration plan requires significant shareholder funding, the ministry said, with Hyundai Oilbank and Lotte Chemical each set to inject Won 600 billion ($416.7 million) into the new integrated entity -- Won 1.2 trillion ($833.3 million) in total -- shifting Hyundai Chemical's ownership to 50-50 from 60-40, a structure designed to align incentives around capacity rationalization and portfolio upgrades.

For investors, the support package is intended to ease execution risk and near-term cash strain -- two major hurdles for an industry enduring a prolonged downcycle, the ministry added.

"The financial component totals up to Won 2 trillion ($1.39 billion), including up to Won 1 trillion ($694.4 million) in new funding and up to Won 1 trillion in perpetual bond conversion, to be coordinated among creditor institutions, with Korea Development Bank expected to finalize details after consultations," MOTIR said.

Beyond funding, Seoul is providing a set of policy levers to address restructuring frictions. These include local tax relief of 75%-100% on acquisition and registration taxes triggered by splits or mergers, as well as corporate tax measures such as extending the tax-deferral period on asset sales to five years' grace plus five years of installments.

Regulators will also shorten merger reviews to 90 days from 120 and streamline permit succession -- steps intended to prevent shutdowns caused by repermitting during corporate restructuring, the ministry said.