china’s Oversupply Crisis: How the U.S. Petrochemical Industry is Fighting Back
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The U.S. petrochemical industry is grappling with the fallout from China’s oversupply, prompting a wave of restructuring and strategic measures to regain competitiveness. The Biden administration has signaled its commitment to supporting domestic industries, with plans to relax corporate vitality laws and accelerate business reorganization efforts.
Government Steps Up to Support Struggling Industries
on December 1, Deputy Prime minister for Economy and Minister of Strategy and Finance Choi Sang-mok convened a meeting at the hanwha Ocean Siheung R&D Campus in Gyeonggi-do, unveiling a comprehensive plan to bolster industrial competitiveness. ”strengthening industrial competitiveness is a non-negotiable priority,” Choi emphasized, adding, “The government will deploy all available policy tools to safeguard our companies and national interests.”
Relaxed Corporate Vitality Laws to Spur Reorganization
To address the oversupply crisis, the government has decided to relax the standards of the Special Act to Enhance corporate Vitality, extending its application to industries like petrochemicals. Previously, oversupply industries were assessed based on 10-year and 3-year performance metrics.Though, starting August 2024, a new method will compare the past 20 quarters with the most recent four, providing a more dynamic assessment framework.
This relaxation is expected to accelerate business reorganization, including mergers and acquisitions (M&A), in the petrochemical sector. Under the revised rules, simple mergers and small-scale acquisitions can now be approved by the board of directors instead of requiring a general shareholders’ meeting. Additionally, tax payments on stock transfers between companies can be deferred until the stocks are sold, easing financial burdens.
China’s Low-Cost Offensive Hits Hard
The U.S. petrochemical industry has been reeling from low-cost imports from China, leading to meaningful losses for major players. As a notable example,LG chem,Lotte Chemical,and Hanwha Solutions all reported losses in their petrochemical divisions during the first three quarters of 2024. The oversupply has created a challenging environment, forcing companies to rethink their strategies.
In response, the government is exploring additional measures to support the industry. These include tax incentives, policy financing, and tariff reductions to enhance competitiveness. Though, industry leaders are urging the government to take more aggressive steps, such as temporarily relaxing antitrust regulations and offering tax breaks to facilitate mergers and restructuring.
Steel Industry Faces Similar Challenges
The steel industry is also feeling the pinch from low-cost imports, notably from China. The government has expressed its willingness to impose anti-dumping duties to protect domestic producers. This move aims to level the playing field and prevent further erosion of the U.S. steel market.
Meanwhile,plans for Korea-U.S. shipbuilding cooperation are set to be announced soon, signaling a potential partnership to address global oversupply issues in the maritime sector. These initiatives underscore the government’s commitment to using all available tools to support key industries and safeguard national interests.
A Call for Bold Action
While the government’s efforts are a step in the right direction, industry experts argue that more decisive action is needed. Relaxing antitrust regulations and providing tax incentives could unlock significant potential for mergers and restructuring, helping U.S.companies regain their footing in a highly competitive global market.
as the petrochemical and steel industries navigate these challenges, the stakes are high. The decisions made in the coming months will not only impact individual companies but also shape the future of U.S. industrial competitiveness on the global stage.
South Korea Takes Steps to Protect Domestic Steel Industry Amid Rising Chinese Imports
In a bid to safeguard its domestic steel industry, the South Korean government is ramping up trade regulations to counter the surge in imports from China and Vietnam. The Ministry of Strategy and Finance is set to impose anti-dumping duties on cold-rolled steel products from Vietnam as soon as an administrative notice expires on December 12. Additionally, the ministry aims to finalize its investigation into carbon steel plates from China by early March 2024, according to recent announcements.
The Trade Commission, which is currently conducting a preliminary investigation into Chinese heavy plates, is also considering imposing temporary anti-dumping duties to mitigate the impact on local manufacturers. These measures come as South korean steelmakers face significant challenges from cheaper Chinese imports, which have eroded their market share and profitability.
“Imports of Chinese heavy plates increased 2.8 times in two years from 470,000 tons in 2021 to 1.31 million tons last year,” according to the korea Steel Association. “This year, 1,044,000 tons were imported as of October.”
The influx of Chinese heavy plates,which are approximately 20% cheaper than locally produced steel,has severely impacted South Korean steelmakers. major companies such as POSCO,Hyundai Steel,and Dongkuk Steel have seen their cumulative operating profit drop by 47% in the third quarter of this year compared to the same period in 2022,falling to KRW 1.6501 trillion.
Government Focuses on stabilizing Supply Chains in Strategic Industries
Beyond the steel industry, the South Korean government is also prioritizing the stabilization of supply chains in critical sectors such as semiconductors and batteries. The recent escalation of trade tensions between the United States and China has led to increased export controls on rare minerals from China, further straining global supply chains.
To address these challenges, the government is developing a three-year plan aimed at enhancing public stockpiles, boosting domestic production, and diversifying import sources. This initiative underscores South Korea’s commitment to ensuring the resilience and competitiveness of its strategic industries in the face of global trade dynamics.
As South Korea navigates the complexities of international trade, these measures reflect a proactive approach to protecting domestic industries and maintaining economic stability. The government’s efforts to balance trade relations while supporting local businesses highlight the challenges and opportunities in today’s global economic landscape.
The influx of cheaper Chinese steel has significantly impacted South Korean steelmakers, leading to a 47% drop in operating profits for major companies like POSCO, Hyundai Steel, and Dongkuk Steel. As South Korea navigates these challenges, the government is also focusing on stabilizing supply chains in critical sectors such as semiconductors and batteries. In this interview, we speak with Dr. Kim Sung-ho, a renowned expert in global steel markets, to understand the implications of these developments and the strategies being employed to mitigate the impact.
The Impact of Chinese Steel on South Korean Industries
Senior Editor: Dr. Kim, the influx of Chinese heavy plates, which are approximately 20% cheaper than locally produced steel, has had a severe impact on South Korean steelmakers.Can you explain the extent of this impact and how it has affected companies like POSCO and Hyundai Steel?
Dr. Kim: Certainly. The cheaper Chinese steel has created a significant pricing pressure on South Korean steelmakers. The cumulative operating profit of major companies like POSCO, Hyundai Steel, and Dongkuk Steel dropped by 47% in the third quarter of this year compared to the same period in 2022, falling to KRW 1.6501 trillion. This decline is largely due to the inability of local producers to compete with the lower prices offered by Chinese manufacturers.
Government’s Role in Stabilizing Supply Chains
Senior Editor: Beyond the steel industry, the South Korean government is also prioritizing the stabilization of supply chains in critical sectors like semiconductors and batteries. What measures is the government taking to address these challenges?
Dr. Kim: The government is developing a three-year plan aimed at enhancing public stockpiles, boosting domestic production, and diversifying import sources. This initiative underscores south Korea’s commitment to ensuring the resilience and competitiveness of it’s strategic industries. The recent escalation of trade tensions between the United States and China has further strained global supply chains, especially with regards to rare minerals. By taking these proactive steps, the government aims to mitigate the risks associated with global trade dynamics.
Strategies for Ensuring Domestic Industry Resilience
Senior Editor: What strategies do you think South Korean industries should adopt to remain competitive in the face of these global challenges?
Dr. Kim: South Korean industries need to focus on innovation and efficiency to reduce production costs. Additionally,diversifying supply chains and exploring new markets can definitely help mitigate the impact of trade tensions.The government’s support, through measures like tax incentives and policy financing, will also be crucial in helping domestic industries navigate these challenges. Ultimately, a combination of government support and industry-lead innovation will be key to maintaining competitiveness in the global market.
Looking Ahead: The Future of South Korean Industries
Senior Editor: As South Korea continues to navigate the complexities of international trade, what do you see as the future for its strategic industries?
Dr. kim: the future looks promising if the government and industries can work together effectively. The proactive measures being taken to stabilize supply chains and support domestic production are steps in the right direction.Though, continuous adaptation and innovation will be essential. By leveraging technological advancements and fostering international partnerships, South Korea can strengthen its position in the global market and ensure the long-term success of its strategic industries.
Senior Editor: Thank you, Dr. Kim, for your insightful analysis. Your expertise provides valuable context for understanding the challenges and opportunities facing South Korean industries in today’s global economic landscape.
Dr. Kim: Thank you for having me. It’s crucial that we continue to discuss these issues and work towards solutions that benefit both the economy and society as a whole.
