Core Viewpoint - The South Korean petrochemical industry is facing severe challenges, with major companies experiencing significant losses and the government pushing for structural reforms amid a crisis that threatens the industry's survival [1][2][3]. Industry Overview - The petrochemical sector, South Korea's fourth-largest export industry, has seen sales decline by 7.8% year-on-year, marking four consecutive quarters of negative growth since Q3 2024 [2]. - The "big four" petrochemical companies in South Korea reported a shift from profit to a loss of 878.4 billion KRW in 2024 and an additional loss of nearly 500 billion KRW in the first half of 2025 [2]. Financial Performance - Major petrochemical companies in South Korea reported an average sales cost rate of 98.6% in the first half of 2025, significantly up from 87.6% in 2021, with some companies exceeding 100% [3]. - The total deficit for ten major petrochemical companies in the first half of 2025 exceeded 18 trillion KRW [3]. Market Dynamics - The price difference between ethylene product sales and raw material costs is insufficient for profitability, with the breakeven point at 300 USD per ton, while the second-quarter price was only 220 USD [4]. - The South Korean refining industry, traditionally strong, is now facing a downturn, with major companies transitioning from a profit of 10.4 trillion KRW in 2022 to a loss of 1.9 trillion KRW in 2024 [4]. Structural Challenges - The industry is heavily reliant on imported naphtha cracking facilities, which has exposed cost disadvantages amid rising international oil prices [3]. - The traditional model of "scale investment and high-end facilities" is becoming unsustainable due to global demand weakness [6]. Employment and Economic Impact - The petrochemical and refining sectors are crucial for local economies, with significant employment and value creation in regions like Ulsan and Yeosu [6]. - The ongoing crisis is expected to increase employment pressure and could lead to severe local economic impacts if prolonged [7]. Government Response - The South Korean government has set three restructuring goals: reducing excess capacity, shifting to high-value products, and improving financial conditions [8]. - A self-regulatory agreement was signed by ten major petrochemical companies to cut national ethylene capacity by 25% (approximately 3.7 million tons) [8]. Foreign Investment Dynamics - Chevron's announcement of significant investment in South Korea's refining and petrochemical sectors has raised concerns about potential control over the industry [10][12]. - The financial deterioration of GS Caltex, a key player in the sector, has led to questions about the motivations behind foreign investments [11]. Future Outlook - The success of the restructuring efforts will depend on the government's ability to implement strong support measures and regulatory frameworks [12]. - The potential for increased foreign control over the petrochemical industry could impact South Korea's economic autonomy and the development of related sectors [12].