South Korea to aid petchem producers after Iran setback

South Korea's government plans to introduce new support measures, possibly including tax breaks or infrastructure upgrades, to help the country's petrochemical producers cope with the loss of condensate imports from Iran and a demand slump brought on by the US-China trade war.

Investment difficulties faced by the petrochemical industry will be reflected in economic stimulus measures at the end of this month, South Korean finance minister Hong Nam-ki said yesterday. Petrochemical producers are seeking support such as help in securing land for expansion, upgrading water infrastructure and providing more tax incentives for investment in facilities and research and development.

The petrochemical initiative is part of a broader effort by the government to increase the competitiveness of South Korea's export industries amid slumping economic growth. Seoul late last year temporarily reduced import taxes on key materials, such as LPG and oil used to make naphtha, to help boost the industry.

But petrochemical profit margins have been squeezed this year by US sanctions against Iran, which cut off South Korea's Iranian condensate imports last month, and by slowing economic growth in China. Iranian condensate not only was cheaper than competing supplies for South Korean companies, but also was relatively high in naphtha content, making it more profitable as a feedstock for petrochemicals. South Korean producers have turned to alternative supplies to fill the supply void.

By helping petrochemical producers cope with recent setbacks, South Korea's government is trying to ensure that the industry goes through with 14.5 trillion won ($12.2bn) in investments that are planned to be made by 2023. The country's refiners and petrochemical companies are building a wave of new steam crackers, several of which will be fed by naphtha or mixed feedstocks. The country's ethylene production capacity is projected to increase by more than half, to almost 14mn t/yr, by 2023.

The government has urged companies to diversify their feedstocks, reducing reliance on naphtha, to help weather volatile market conditions. The industry also needs to stay the course with investment programmes to boost competitiveness after exports rose to a record above $50bn in 2018, the administration said in April.