I FIRST VISITED South Korea in 1998, at the time of the “IMF Crisis” and was mightily impressed by the people I met – their determination to get positive things done.
Note that it wasn’t the Asian Financial Crisis that gripped the country, according to the locals, who quite rightly resented the IMF’s prescription of high interest rates.
What happened following the IMF crisis was quite remarkable: a hi-tech driven reboot of the economy as South Korea became a world-class supplier of memory chips and autos etc.
In chemicals, the space I work in of course, a series of Big Deals led to major mergers of assets to improve competitiveness.
Then came the great China boom. During 1998 the China-driven global Chemicals Supercycle – which began in 1992 and ended in 2021 – was still gathering steam.
China couldn’t keep pace with its surging demand for chemicals and polymers, meaning it obviously needed ever-rising volumes of imports that South Korea helped supply. South Korean capacity expanded, largely to meet the needs of China.
A Crisis That’s Been a Long Time Coming
But the warning signs started flashing way back in 2009, which I highlighted on my blog. China’s giant economic stimulus package at the beginning of that year should have led to South Korean and other chemicals companies building contingency plans for when the debt bubble burst.
In the context of what was already an ageing population, the largely real estate driven bubble had to eventually run out of road because of the laws of supply and demand: too many homes chasing too few babies.
Beijing had a choice in 2009. It could have either opted for big stimulus in response to the Global Financial Crisis or it could have chosen to rebalance the economy towards a more evenly spread and thus sustainable growth trajectory.
This would have required investing in better pension and healthcare systems, improving tax collection and gradually increasing incomes in order to rebalance the economy away from investment and towards domestic consumption.
But, of course, this didn’t happen, and big stimulus was the choice. Now we face Chinese chemicals demand growth that is likely to be in the low single digits, perhaps with some years of negative growth, over the long term.
Sure, the export portion of China’s economy, especially the hi-tech and green export sectors such as AI and EVs, may continue to boom.
But these sectors will create relatively few jobs (AI might, at least in the short term, lead to a loss of employment) as lower-value manufacturing comes under increasing pressure because of higher labour costs.
Perhaps the great rebalancing towards an economy much more focused on domestic consumption can happen. But is there the political will to raise wages and taxes? And can China afford the necessary improvements in healthcare and pension systems?
Today’s crisis, as I said, shouldn’t have surprised South Korean and other chemicals companies. But it did because the consensus view was that China was becoming middle-class by Western standards so everything would be fine.
Conventional analysis overlooked China’s demographics and debt. There is a lesson in this for the future. We mustn’t overlook the big picture challenges over the next 30-odd years, front and centre of which is climate change.
Anyway, we are where we are today with a global chemicals oversupply crisis that is unlikely to dissipate for at least the next three years, probably longer.
Too much chemical and polymers capacity has been built (like apartments in China), chasing demand that won’t exist.
Another pivotal year was 2014 when an article in the China Daily, again highlighted on the blog, said that Beijing was going to push hard towards much greater chemicals self-sufficiency for economic value-addition reasons.
Later-on, a more uncertain geopolitical environment led to an acceleration in the push towards self-sufficiency for supply security reasons.
But still, right up until the Evergrande Turning Point in late 2021, too few chemical companies were aware of what lay ahead. Regular readers of the blog will have had the chance to be ready for the Evergrande Turning Point.
The effects on South Korea’s polypropylene (PP) industry
Let me focus here just on PP, starting with some global context on the extent of the oversupply.
In a pattern familiar to many chemicals:
• PP capacity exceeding demand averaged 5m tonnes per annum in 1992–2021 during the Chemicals Supercycle. In 2022–2035, the ICIS forecast is for 22m tonnes a year.
• Operating rates averaged 87% per year in 1992–2021. In 2022–2035, we forecast operating rates at 78%.
The chart below puts this into the South Korean context. Capacity exceeding demand is expected to range between 5m and 4m tonnes a year between 2021 and 2035. This compares with 1–2m tonnes from 1992 until 2020.
Details of the Government’s Rescue Package
The South Korean government announced a comprehensive plan to boost its petrochemical sector in December last year.
Here are the key highlights of the plan:
• Financial Support: The government is offering up to 3 trillion won in financing options, including loans and guarantees, to assist petrochemical companies in restructuring their operations. This support aims to help companies streamline processes, merge, or even pivot to new business areas.
• Encouraging Restructuring: There’s a big push for companies to voluntarily restructure. This could mean anything from closing down certain facilities to forming joint ventures or acquiring new businesses. To sweeten the deal, the government is providing legal reforms and a mix of financial and tax incentives.
• R&D Boost: Recognising the need for innovation, the plan includes support for research and development. The goal? To shift from producing basic petrochemicals to more specialised, high-value products. An “R&D Investment Roadmap for 2025–2030” is set to be unveiled in the first half of this year to guide these efforts.
• Cost Reduction Measures: To help reduce operational costs, the government plans to extend duty-free periods for crude oil used in naphtha production until the end of 2025. They’re also looking to refund import surcharges on liquefied natural gas (LNG) used as industrial raw materials. Plus, there’s talk of a “fast-track” approval process for building ethane import terminals and storage tanks, which could provide access to cheaper raw materials.
This last point about fast-tracking approval for ethane import terminals, with the ethane coming from the oversupplied US, might mean a reduction in propylene supply – and therefore PP capacity – if South Korean crackers switch to this much-lighter feedstock.
And while we are talking about feedstocks, the SK Oil/Saudi Aramco crude-oil-to-chemicals complex is due to start-up in South Korea in 2026. It has 770,000 tonnes/year of propylene capacity but no propylene derivatives.
Might this start-up improve the economics of local PP producers through more availability of C3s?
More broadly, the rescue programme may lead to some M&A activity in a local PP sector that includes nine producers and total capacity of 6.3m tonnes/year in 2025.
South Korea’s strengths: Global Reach and a Wide Range of Grades
The chart below shows that the South Korean PP industry had adapted extremely well to rising Chinese self-sufficiency. This is through increasing exports to other destinations.
I have compared 2021, the year before the end of the Chemicals Supercycle, with 2024.
Exports to China were down 37% on the country’s rising self-sufficiency and a big decline in China’s consumption growth.
But total exports were down by just 6% thanks to big gains in exports to countries such as Turkey, Belgium, Italy, Japan, Indonesia, Thailand, Brazil, Colombia, Poland and Peru.
South Korea produces a wide range of PP grades, many of which are higher value. This helps explain the growth in exports to developed markets such as Belgium, Italy and Japan.
Now we move on to the prescriptive part of the blog.
South Korean companies need to ask the following questions in a scenario-based study. They need to prepare for a range of answers:
• To what extent will rising global protectionism threaten South Korea’s ability to maintain exports at healthy levels?
• How will ASEAN producers respond to import competition from South Korea and China etc.?
• Will, though, consolidation in Europe create new opportunities? How big will these opportunities be?
• What if China were to become completely self-sufficient even in co-polymer grades?
Preparing for the Long Term
As I discussed in my 13 March post, I believe that climate change will be a defining challenge and opportunity of the chemicals industry over the next 30 years. Here is a reminder of the key slide:
Using the government R&D money that’s been available through the government rescue package, South Korea could lead the world in further innovations in PP in the following areas:
• Engineers are using pure PP or versions reinforced with fibres like glass or even natural materials to create lighter vehicle parts.
• Lightweighting has for years helped cars and planes use less fuel and emit fewer pollutants. For electric vehicles, lower weight means more battery range, which is a massive bonus.
• Next, there’s thermal insulation. Think foamed PP or PP combined with advanced materials like aerogels or silica. These are being used in buildings and appliances to manage heat more effectively.
• Then we’ve got carbon capture and storage. Porous PP membranes or PP blended with metal-organic frameworks (MOFs for short) could be used in modular carbon capture systems. Imagine filters made from PP that quite literally “breathe in” CO₂ from industrial processes.
• In agriculture, PP is showing promise in smart mulch films. Blends that are biodegradable or specially coated can help increase crop yields while cutting down on water usage and fertiliser runoff.
• Through reinforcing PP with carbon or glass fibres, PP could become strong enough for lighter, non-load-bearing parts of wind turbines—like nacelle covers or cable insulation.
• UV-stabilised PP or its composites are being used for mounts and casings in solar panels, replacing heavier, corrosion-prone metals. This means lower cost, less maintenance, and a smoother path to recycling at the end of its life.
Artificial intelligence, as with so many other aspects of chemicals, can speed up innovation through design optimisation: AI analyses vast datasets to identify stronger, lighter, more durable and more sustainable composite materials.
The work of years could be reduced to just days or weeks.
Conclusion
South Korea’s PP industry stands at a crossroads. The collapse of the China-driven Chemicals Supercycle and the rise of oversupply have created a challenging environment, but not an insurmountable one.
With a forward-thinking government rescue plan, global market reach, and expertise in high-grade products, the foundations for recovery are there. The big shift now is from reacting to short-term pressures to planning for long-term resilience. This means grappling honestly with the realities of a slowing China, rising protectionism, and the urgent need to align with a climate-affected future.
The sector must continue to innovate—not just in products, but in business models, partnerships, and market strategies. With the right support and vision, South Korea could become a global pioneer in the next generation of advanced, sustainable PP solutions.