South Korea conditionally approves Daesan petrochemical integration amid oversupply concerns

Conditional approval opens consolidation phase

South Korea’s competition authority has conditionally approved the Daesan No. 1 project, marking the start of a broader period of plant integration in the country’s petrochemical industry. Newsvalue described the decision as a compromise between allowing producers to address excess capacity and preventing excessive concentration in domestic product markets. The restructuring reduces the number of companies involved from four to three, but its success will ultimately depend on improvements in cost competitiveness and productivity rather than the transaction’s scale.

The conditions cover prices, product supply and the exchange of competitively sensitive information. The restriction on price increases is temporary, but the authority said it could extend the measure if competition concerns remain after five years. Regulators will need to verify whether permitted price movements are properly linked to export prices, whether specified products continue to be supplied and whether sensitive information is kept from affiliated companies.

Chinese capacity adds to feedstock pressure

According to the National Assembly Budget Office, China’s large-scale capacity expansion and domestic-market-oriented policies have exposed South Korea’s petrochemical sector to stronger price competition and weaker demand. China’s progress in commodity products has also increased the pressure on Korean companies to move toward higher-value specialty materials. As Chinese supply capacity expands, Korean producers must place more volume in markets outside China, increasing the importance of destinations such as India and Türkiye.

South Korea’s production base is centered on naphtha cracking facilities, leaving operating costs sensitive to international oil and naphtha prices. US competitors benefit from ethane-based plants, while Middle Eastern producers can use comparatively inexpensive feedstocks. This means that reducing domestic capacity alone may not restore competitiveness. Shipments to new export markets can absorb some output, but freight costs and local competition mean that higher export volumes do not automatically deliver better margins.

Efficiency gains must reach product markets

Integration can lower fixed costs, improve operating rates, coordinate feedstock procurement and remove duplicated equipment. However, Newsvalue cautioned that profitability gains could remain limited unless the products themselves become more competitive. Companies therefore need to reduce dependence on commodity grades, increase the share of higher-value products and build portfolios capable of competing internationally. The relevant performance measures after restructuring should include profit per tonne, utilization rates, feedstock costs, fixed costs per facility and the share of value-added products—not simply production or export volume.

The authority is also reviewing the Yeosu No. 1 project. Under that proposal, Lotte Chemical would jointly control Yeochun NCC with Hanwha Solutions and DL Chemical, while Yeochun NCC would acquire Hanwha Solutions’ LDPE and EVA business. Complex shareholding relationships could raise further questions about access to competitors’ information and possible price coordination. Product-level market shares, competition from imports, overseas supplier prices, the scale of domestic buyers and the availability of substitutes will all matter. The Daesan conditions may consequently become a reference point for later restructuring in Yeosu and Ulsan, while the government must also manage the effects of capacity cuts on workers, regional economies and suppliers and support investment in research and higher-value materials.