South Korean petrochemical stocks surged on the 23rd following government approval of a major industry restructuring plan. Lotte Chemical rose 6.08% that day and gained 10.95% over two days since the 21st, while Hanwha Solutions climbed 12.78% and DL rose 10.65% in the same period. The Ministry of Trade, Industry and Energy approved the Yeosu Project No. 1 restructuring plan on the 22nd, which will halt Yeocheon NCC Units 2-3 for over three years, cutting 1.39 million tons of annual capacity. Combined with Dasan Industrial Complex's 1.1 million ton reduction, total domestic NCC facility cuts reach 2.49 million tons. The government committed over 700 billion won in financial support to address chronic oversupply through production capacity reductions and debt restructuring.
Petrochemical Stocks Post Double-Digit Gains Over Two Days
According to Korea Exchange data on the 23rd, Lotte Chemical closed at 62,800 won, up 6.08% from the previous trading day. The stock rose 4.59% on the 22nd, marking two consecutive days of gains. Compared to the closing price on the 21st before news of the government's Yeosu Project No. 1 approval, Lotte Chemical climbed 10.95% over the two-day period.
Hanwha Solutions rose 12.78% and DL increased 10.65% during the same timeframe. LG Chem gained 8.38%, Kumho Petrochemical advanced 6.02%, and Daehan Oil Chemical rose 6.96%. The government's announcement of additional restructuring plans stimulated investor sentiment across the sector.
Government Approves Yeosu Project No. 1 Restructuring Plan
The Ministry of Trade, Industry and Energy granted final approval on the 22nd to the Yeosu Project No. 1 restructuring plan submitted by Yeocheon NCC, Lotte Chemical, Hanwha Solutions, and DL Chemical. Lotte Chemical will physically split its Yeosu plant's naphtha cracking facility (NCC) and basic materials business to establish a new corporation, which will then merge with Yeocheon NCC. Hanwha Solutions and DL Chemical will contribute downstream businesses including polyethylene (PE) through in-kind capital contributions.
Lee Jin-myeong, researcher at Shinhan Investment & Securities, stated: "The scale of NCC operation suspensions in Yeosu and Dasan corresponds to 67-92% of the reduction target presented by the government. The key point is that domestic petrochemical restructuring has transitioned from the planning stage to actual operation suspension and corporate merger stages."
Facility Reductions Total 2.49 Million Tons Across Two Complexes
During the integration process, Yeocheon NCC Units 2 and 3 will suspend operations for more than three years. The reduction scale amounts to 1.39 million tons annually. Adding the 1.1 million tons of suspended capacity already decided at Dasan Industrial Complex, the total domestic NCC facilities with confirmed reductions reaches 2.49 million tons.
Vice Minister Moon Shin-hak emphasized: "For the restructuring of the petrochemical industry to succeed, business reorganization with participation from all industrial complexes without free-riding is necessary."
Lotte Chemical Debt Projected to Drop 3.2 Trillion Won
Financial structure improvements are anticipated. According to Hana Securities, assuming assets and liabilities of similar scale to Dasan transfer to the integrated corporation in Yeosu, Lotte Chemical's consolidated total borrowings are estimated to decrease from 10.347 trillion won at the end of the first quarter to 7.138 trillion won after the Dasan and Yeosu restructuring. Under the same conditions, the debt ratio is calculated to fall from 76.0% to 52.8%, and borrowing dependency from 32.4% to 24.9%.
Kim Sang-man, researcher at Hana Securities, stated: "Through the split, the surviving corporation's debt and borrowings decrease, resulting in improved financial ratios. Financial support implemented during structural reorganization will buy time to reduce financial burden for at least several years."
Government Commits Over 700 Billion Won Support Package
The government will provide over 700 billion won including up to 450 billion won in new funds, debt repayment deferrals, import insurance premium discounts, and 200 billion won in import financing loan guarantees. Hanwha Solutions and DL Chemical will each participate in 272.5 billion won paid-in capital increases, totaling 545 billion won to support Yeocheon NCC's debt repayment.
Analysts Cite Supply Concerns Despite Restructuring Efforts
Securities industry voices express concerns that near-term industry recovery remains difficult to expect. Experts assess that while this restructuring will help reduce participating companies' financial burdens, long-term stock price rebounds remain uncertain given continued oversupply prospects.
Chinese oversupply and geopolitical risks persist, with domestic large-scale expansion volumes also waiting. S-Oil's Shaheen Project, the largest domestic petrochemical project with over 9 trillion won invested, is scheduled to begin full operations in the first half of next year, raising concerns about adding supply pressure. Considering the Shaheen Project's large-scale new volumes, observations suggest this supply adjustment's effect may be limited.
Lee Jin-myeong stated: "Considering the burden of Chinese expansion and geopolitical risks, it is difficult to expect normalization of market conditions in the short term."
FAQ
What capacity reductions did the South Korean government approve on the 22nd?
The Ministry of Trade, Industry and Energy approved the Yeosu Project No. 1 restructuring plan, which will halt Yeocheon NCC Units 2-3 operations for over three years, reducing 1.39 million tons of annual capacity. Combined with Dasan Industrial Complex's 1.1 million ton reduction, total domestic NCC facility cuts reach 2.49 million tons.
How much did Lotte Chemical stock rise after the restructuring approval?
Lotte Chemical rose 6.08% on the 23rd and gained 10.95% over two days from the 21st closing price. Hanwha Solutions climbed 12.78% and DL increased 10.65% during the same period.
What financial support is the government providing for petrochemical restructuring?
The government committed over 700 billion won including up to 450 billion won in new funds, debt repayment deferrals, import insurance premium discounts, and 200 billion won in import financing loan guarantees. Hanwha Solutions and DL Chemical will each contribute 272.5 billion won in paid-in capital increases, totaling 545 billion won.
