The government and industry are accelerating the reduction of naphtha cracking centers (NCC), but experts warn that the focus should not solely be on how much to cut. They emphasize the need to remove uncompetitive facilities while strategically retaining the infrastructure necessary for future high-value material production and domestic advanced industry supply chains.
According to a report published on September 2 by the National Assembly Future Research Institute, the crisis facing South Korea's petrochemical industry stems not merely from poor market conditions but from the structural limitations of its existing growth model.
The South Korean petrochemical sector has traditionally grown by producing generic products at large-scale NCCs for export to China. However, as China has significantly increased its production capacity and self-sufficiency, it has turned from being the largest export market into a competitor. This situation is compounded by aggressive competition from Middle Eastern and U.S. companies, global oversupply, and the tightening of carbon neutrality and circular economy regulations.
The institute argues that the goal of restructuring should not be merely to reduce capacity. In the short term, while addressing excess capacity and cost structures, it is crucial to evaluate the competitiveness of each facility and its impact on upstream and downstream industries to determine which facilities to cut, maintain, or transition.
Specifically, the report proposes a rationalization roadmap that categorizes restructuring targets into reduction, transition, and maintenance. Facilities that lack competitiveness should be reduced, while those that can be utilized should be transitioned to high-value, low-carbon production facilities. Meanwhile, production bases essential for future advanced industry supply chains should be strategically preserved.
There is also a call to establish a 'national petrochemical material and equipment supply chain map' that outlines the connections between raw materials, basic petrochemicals, intermediates, high-value materials, and upstream industries. This is necessary to ensure that individual companies' restructuring plans lead to actual adjustments in the industry's overall production capacity.
After rationalization, it is emphasized that the remaining production bases must be linked to new demand. Utilizing existing facilities, workforce, and infrastructure such as land, pipelines, and ports, the industry should foster high-value materials connected to domestic upstream sectors like semiconductors, batteries, automobiles, and artificial intelligence (AI), while transitioning to circular materials and low-carbon processes.
The report also suggests expanding the scope of research and development (R&D) support to include not just technology development but also demonstration, certification, mass production, and initial purchasing.
Consideration must also be given to the impact on petrochemical industrial clusters in Yeosu, Ulsan, and Daesan. It is essential to redeploy skilled workers in process operation, equipment, safety, and environmental fields to growth areas within the industry and support the business transition of partner companies to facilitate entry into new supply chains. The report proposes utilizing idle land, pipelines, storage facilities, and ports that arise during the reduction process as a foundation for transition industries.
Kim Eun-ah, a researcher at the National Assembly Future Research Institute, stated, "The success of the rationalization policy should be evaluated not by how much NCC capacity is reduced, but by how effectively the reduced capital, workforce, land, and industrial base are transitioned to a new competitive production structure."
* This article has been translated by AI.
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