At a time when the world’s geopolitical map seems to shift with every headline, South Korea’s petrochemical industry is feeling the full force of international tensions. The recent escalation of conflict between the United States and Iran, culminating in the blockade of the Strait of Hormuz, has sent shockwaves through Asian markets, leaving South Korean companies scrambling to secure vital raw materials and reassess their business strategies.
On April 9, 2026, at the 2026 first half KIS Credit Issue Seminar in Yeouido, Kim Hoseop, a research fellow at Korea Ratings (한국신용평가), laid out the scale of the crisis. According to Korea Ratings, the blockade of the Strait of Hormuz has severely disrupted the supply of naphtha—a key feedstock for the petrochemical sector—causing production rates at domestic companies, which are heavily reliant on Middle Eastern imports, to fall below minimum operational levels. "The impact on the Asian petrochemical market has been significant," Kim stated, noting that some companies have already been forced to curtail operations well below their minimum sustainable rates.
In the short term, the crisis triggered a spike in crude oil prices and stoked fears of further supply disruptions. This led to a temporary increase in sales prices and widened margins for some producers. But as April unfolded, these margins began to erode, and the initial gains in profitability were quickly offset by rising input costs. As Kim explained, "Although sales margins expanded briefly, the effect was short-lived—cost pressures are now mounting, and any improvement in profitability is being rapidly negated."
This latest upheaval has shone a harsh light on the structural vulnerabilities of South Korea’s petrochemical supply chain. The industry’s longstanding dependence on Middle Eastern raw materials, combined with a limited range of production methods, has left it dangerously exposed to external shocks. Korea Ratings emphasized that the current crisis underscores the urgent need for sweeping business restructuring—an effort that is already underway but now takes on new urgency.
Major restructuring projects are in motion across the country’s three main petrochemical complexes: Daesan, Yeosu, and Ulsan. The so-called "Daesan 1" project involves spinning off Lotte Chemical’s Daesan plant and merging it with HD Hyundai Chemical. Meanwhile, in Yeosu, Lotte Chemical’s NCC (naphtha cracking center) is being split and merged with Yeochun NCC, alongside the creation of a joint venture between Hanwha Solutions and DL Chemical—dubbed "Yeosu 1." In Ulsan, discussions for similar reforms involving SK Geocentric, Daehan Petrochemical, S-Oil, LG Chem, and GS Caltex are ongoing, though they lag behind the other sites.
According to Korea Ratings, these restructuring projects are expected to begin integrated operations in the first and second halves of 2027 for Daesan 1 and Yeosu 1, respectively, with Ulsan’s changes expected to trail by at least six months. The hope is that these overhauls will help buffer the industry from future shocks, but the benefits are not expected to be evenly distributed.
Integrated entities such as HD Hyundai Chemical and Yeochun NCC are poised to reap the most rewards. With facility integration, increased operating rates, and the elimination of duplicate costs, these companies are expected to see meaningful improvements in their financial structures and business portfolios. As Kim Hoseop noted at the seminar, "HD Hyundai Chemical, as a representative beneficiary of restructuring, is well-positioned to improve profitability starting this year through upstream integration and cost reductions." He added that the expansion of high-value specialty product lines should further boost operating profits, and the company’s accumulated financial burdens are expected to ease.
The outlook for Yeochun NCC is similarly optimistic, contingent on the successful completion of its restructuring. Portfolio enhancement and capital expansion could lead to improved medium- to long-term profitability and greater financial stability. Korea Ratings also pointed to significant capital increases—approximately 1.2 trillion KRW—and up to 1 trillion KRW in perpetual bond refinancing as factors that could reduce financial burdens, even as debt is transferred from Lotte Chemical’s Daesan plant.
However, the picture is less rosy for legacy companies such as Lotte Chemical, LG Chem, and SK Geocentric. While restructuring may help reduce losses, these firms are expected to continue grappling with substantial financial burdens. For Lotte Chemical, the transfer of debt related to the Daesan plant restructuring is partly offset by new equity injections and perpetual bond issuances, but the net effect on financial relief is limited. Overseas operations, including Lotte Chemical Indonesia (LCI) and Titan, are projected to remain weak for the foreseeable future, and the company’s overall credit burden is expected to remain high. "It’s not easy for Lotte Chemical to turn a profit in the short term given the ongoing Middle East supply disruptions and lower operating rates," Kim commented at the seminar.
LG Chem faces its own set of challenges. The company has reported concurrent operating losses in its petrochemical and energy solution divisions, exacerbated by weakening demand for electric vehicles in North America. These setbacks have increased net debt and financial burdens, raising concerns about the company’s credit rating. The delayed pace of restructuring, combined with the impact of the Middle East crisis, has further depressed operating rates and profitability. Korea Ratings anticipates that LG Chem’s earnings will continue to deteriorate in the near term, with credit pressure rising accordingly.
SK Geocentric, meanwhile, finds its profitability improvement hampered by a portfolio still focused on commodity products like aromatics and polymers, and by slow progress in Ulsan restructuring talks. Nonetheless, the company has managed to slow the pace of debt increase through reduced investments and the sale of non-core assets, according to Korea Ratings.
Despite these efforts, the industry as a whole faces persistent downward pressure on credit ratings. The time required for financial improvements, coupled with ongoing market uncertainties, means that the credit outlook for South Korea’s domestic NCC companies remains challenging. As Kim Hoseop emphasized, "Even with the positive effects of business restructuring, the pressure on credit ratings for domestic NCC companies is still considerable given the time needed for financial improvements and the current uncertainty in the business environment."
One thing is clear: the crisis has forced South Korea’s petrochemical sector to confront its vulnerabilities head-on. Whether the current wave of restructuring will be enough to build lasting resilience remains to be seen, but for now, companies and investors alike are watching the unfolding changes with a mix of hope and apprehension.