South Korea’s petrochemical industry, the country’s fourth-largest export sector, is experiencing its worst winter in recent years. South Korea’s “Big Four”– Lotte Chemical, LG Chemical, Hanwha Solutions and Jinghu petrochemical — all suffered large losses in the first half of 2025. South Korea’s new government, which took office in June, has made the petrochemical industry a key target of rectification, asking companies to protect themselves from“Structural downsizing”. At this critical juncture concerning the survival of the industry, the reform of Korean enterprises has stalled, allowing the crisis to spread layer by layer. At the same time, the US oil giant chevron suddenly announced a high-profile increase in investment in South Korea, was questioned by public opinion is in the industrial trough“Low cut”, in order to further control of South Korea’s pillar industries.
“The collapse of the oil refining powers.”
South Korea’s petrochemical and refining systems have come under pressure in recent years. Petrochemical industry sales fell 7.8% year-on-year, dragged down by overall weakness in the manufacturing sector, according to the bank of Korea’s second quarter 2025 Business Operation Analysis report released Monday, this is the fourth consecutive quarter of negative growth since the third 2024. South Korea’s “Big Four petrochemical companies” 2024 a loss of 878.4 billion won (1,000 won) from a profit, followed by a loss of nearly 500 billion won in the first half of 2025, Chosun Ilbo reported Thursday, the annual loss or further expansion. According to Chosun Ilbo, oil refining is South Korea’s fourth-largest export industry after semiconductors, cars and general machinery, but the country is now on the “Brink of collapse as a refining power”.
The survival crisis of the Korean petrochemical industry stems from its high dependence on imported naphtha cracking units. With the high international oil prices, highly dependent on imports and exports of the Korean petrochemical industry cost disadvantage accelerated exposure. In the first half of 2025, the average cost ratio of major Korean petrochemical companies reached 98.6% , a sharp rise from 87.6% in 2021. Some companies even broke 100% , Yonhap news agency reported, that means revenues can no longer cover production costs. HD modern chemistry’s first-half cost ratio was 107.3 per cent, while korea-france joint venture Hanwha Total Energy was 103.7 per cent and SK Geo Centric 101 per cent, all losing money. At the same time, soaring electricity prices have pushed the burden even higher. Industrial electricity prices in South Korea have risen nearly 65% this year from the first quarter of 2022 and now account for 60% of the petrochemical industry’s production costs. The double whammy left the country’s 10 leading petrochemical companies with a combined deficit of more than WON1,800 bn in the first half of the year.
At the same time, the difference between the selling price of ethylene, an important petrochemical product, and the cost of feedstock is not enough to sustain profitability. The break-even point for ethylene, a basic chemical, is typically $300 a tonne, but was just $220 in the second quarter, well below the Red Line. South Korea’s petrochemical industry has long relied on the“Naphtha cracking-ethylene export” business model, in the international raw material price increases and the Middle East, China’s continued expansion of the double impact has been difficult to sustain, profit margins are being squeezed. To make matters worse for South Korean companies, the environment for international energy trade has deteriorated since President Donald Trump took office in 2025. According to an analysis by South Korean petrochemical company GS Garters’ energy column, the combination of high U.S. tariffs and trade frictions between China and the United States is reshaping the global basic chemical industry, that makes export-dependent South Korea more uncertain.
Oil storage tank at Incheon Port, South Korean petrochemical company GS Gades. Visual China
While the Korean petrochemical industry is in deep trouble, the refining industry is also in a cyclical downturn. The main operations of South Korea’s big four refineries made Won10,400 bn in profits in 2022,2024 a loss of WON190.4 bn and lost more than WON1,500 bn in the first half of 2025. South Korea’s traditional refining strengths are eroding fast. Slowing demand for refined oil products, faster penetration of electric vehicles and soaring electricity prices have continued to reduce industry profitability.
South Korea’s SK Group, a refining base (AFP)
South Korea has had a refining industry since 1960 and expanded rapidly in the 1990s. As of 2024, South Korea’s average daily refining capacity is about 3.36 million barrels, ranking fifth in the world, third in Asia, and leading the world in unit capacity. The industry has long relied on“Large-scale investment + high-end equipment” to spread costs, but this model can not be sustained in the context of weak global demand.
“Chosun Ilbo” reported that in recent years, countries in the Middle East and China continue to expand refining and chemical plant. Refining capacity has also grown by 85 per cent over the past decade to an average of 5.17 m barrels a day, with plans to expand further ahead of 20282024. Under the pattern of“Marginal pricing right spillover”, the bidding and load adjustment space of Korea’s export-oriented refining and chemical system is greatly compressed.
Already, the industry’s woes have spilled over into South Korea’s local economy. Petrochemical and refining capacity is concentrated in Ulsan, Dashan and Lishui. Take the Chellona-daoli industrial park as an example, the related employment accounts for 67.4% of the local manufacturing industry, and the proportion of added value created is as high as 96.3% . Local finances and social stability will bear the brunt once the downturn becomes permanent. Local governments have called on the central government to introduce targeted subsidies to prevent a“Cliff-like decline” in employment.
Xiang haoyu, a research fellow at the Institute of asia-pacific studies of the China Institute of International Studies, told the global times that as one of the pillar industries of South Korea’s economy, the crisis in the petrochemical sector is leading to lower profitability and lower investment, dragging down the overall economy to some extent. The industrial chain of petrochemical industry involves a large number of employees, whose plight will further intensify the employment pressure. “The recent crisis in the Korean petrochemical industry is another microcosm of Korean manufacturing catching up with emerging countries.” Xiang said the sector was struggling to compete with emerging markets because of cost disadvantages, market share is shrinking. In other sectors, such as consumer electronics and Autos, South Korean companies are also facing emerging-world challenges. For example, the decline of Korean car market share in China, Korea Cosmetics lost ground in China, etc. , reflect the overall advantage of South Korean manufacturing is weakening.
The decision-making is subject to foreign investment
To help the industry save itself, the government has proposed three major restructuring goals: reducing overcapacity and facilities, moving to higher value-added products, improving corporate finances, and minimizing the impact on employment and the local economy. South Korea’s Ministry of Industry, trade and resources last month pushed 10 of the country’s leading petrochemical companies to sign a self-regulation pact aimed at cutting ethylene production capacity by a quarter (about 3.7 m tonnes) by the end of the year. However, the industry response was not positive. South Korea’s joongang Ilbo reported that less than half of the 10 petrochemical companies surveyed were seriously considering halting production. Some companies prefer to maintain the status quo even if the cumulative losses are severe. Industry insiders say it is now a Live and Let Die to “Shut down or merge”, but many companies are struggling to make up their minds.
More crucially, many of Sinopec’s leading companies are joint ventures in which foreign shareholders hold large stakes, making it difficult to quickly agree on major decisions. GS Gardes (50 per cent owned by Chevron) , hanwha-total energy (total of France) have struggled to reach a resolution because of the complexity of their shareholders, while S-oil has bucked the trend by expanding under Saudi Aramco’s control, exacerbating divisions in the industry. Lishui’s NCC, a joint venture between Hanwha and DL, even had a “Default crisis” due to shareholder conflicts, exposing the governance difficulties of the “National Lifeline Industry” under the joint venture model. Choe Chang-yun, a partner at South Korea’s Sanyi accounting firm, said the industry restructuring is about speed and cash flow. It is not enough to rely on self-discipline, and the government must introduce stronger subsidies and system support.
In the foreign shareholders balance, the lack of willingness to help themselves, the government still hope in the“Enterprise self-discipline”, is bound to exacerbate the slow restructuring. “Culture daily” commented that the government relies on corporate self-discipline, inevitably in the interests of coordination, Price negotiations and equity arrangements to spend time and costs. China, by contrast, is phasing out small, ageing petrochemical capacity, while Japan has pushed for consolidation through laws and executive orders, with government-led reforms significantly faster than South Korea’s. Industry concerns, if the Korean government, enterprises and local society can not form a synergy, Korean enterprises in global competition will be slow to reform and long-term constraints.
n raise, “Blood transfusion” or control?
US oil giant chevron has suddenly announced“Large-scale investments in refining and petrochemicals in South Korea” as vulnerabilities in the country’s petrochemical industry have been exposed at an accelerating pace. Chevron executives told the asia-pacific oil conference in Singapore about their global operations and plans to make“Large-scale investments” in South Korea, with a focus on refining and petrochemicals, Reuters reported Tuesday. The industry pointed out that this and the Korean government to encourage high-end upgrading, the development of biofuels and other emerging track policy direction overlap. At the corporate level, Chevron, with a 50% stake in GS Gardez, is expected to bring capital and technology to the industry during the downturn cycle“Stabilizers.”. But public opinion is concerned that the move may change the governance and capital allocation rights of the joint venture, strengthening control of South Korea’s pillar industries.
LG Chem is considering selling its 2m-tonne-a-year naphtha cracking unit in Lishui to GS Caltex and operating it through a joint venture, according to the South Korean Green Economy News. Synergies are expected to occur immediately when combined with GS Caltex’s existing 900,000-ton blended feedstock cracking unit and logistics facilities. But with Chevron as a major shareholder, there is widespread concern that the US could enter the Korean petrochemical industry at a“Low point” at this time, further expanding its influence in the restructuring process.
In this predicament, GS Gattus’s own financial deterioration is even more worrying. According to the FSA, the company suffered an operating loss of WON257.5 bn in the second quarter of 2025 and a cumulative loss of WON141.4 bn in the first half. Operating profit plunged from WON3,9795 bn in 2022 to won548bn in the 2024 year, a drop of more than 80 per cent in three years. Affected by this, its parent company GS Energy to pay dividends reduced by more than 90% year-on-year, dragging GS group dividend. GS GATTAS, once seen as a“Laying hen”, is also bleeding, making Chevron’s investment motives even more compelling.
In an interview, LG chemical said the Korean petrochemical and refining industries were suffering from a triple squeeze of“Oversupply-rising costs-weakening demand” and that restructuring had become a necessary option. It remains to be seen, however, whether Chevron’s investment is a lifesaver or a“Deep hand” to strengthen U. S. ownership.
Xiang Haoyu analysis, Chevron plans to increase investment in Korea has multiple purposes, on the one hand, see Korea although facing an industry crisis, but still have a certain market and industrial basis. By investing, Chevron can gain market share and expand his business, while at this point his expansion plans can be achieved at a lower cost with policy support from the South Korean government. From a strategic perspective, the US entry could control key production links and markets, deepening Korea’s dependence on the US in the petrochemical industry, or lead to Korea’s loss of autonomy in industrial development, a large outflow of profits. The petrochemical industry is a key link in South Korea’s manufacturing supply chain. US control of the petrochemical industry may affect the development of semiconductor, steel and other related industries and touch the“Foundation” of South Korea’s economy.
South Korean public opinion generally believes that the future depends on the government can come up with stronger subsidies and institutional support. South Korea’s parliament recently joined forces to promote the“Petrochemical industry special law”, through financial support and regulation of special cases to provide institutional protection for industrial restructuring. Zheng Qinglai, head of the ruling Democratic Party, also said he would do his best to promote the upgrading of the petrochemical industry. South Korea’s industry is concerned about whether the move can become a breakthrough deadlock, to promote industrial restructuring of the new momentum.