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Analysis Area:  Ulsan Metropolitan City

Core Area:  Nam-gu and Ulju-gun

Agenda: The Cyclical and Structural Nature of the Petrochemical Crisis and the Assessment of the Ulsan Turning Clock

Golden Time Type: Structural Overcapacity Lock-in Risk

Reference Date: 2026.08.28

Version: Regional AX Golden Time Intelligence v3.2
 

In March 2026, Ulsan's total mining and manufacturing production increased by 3.6% compared to the same month of the previous year, but chemical product production decreased by 9.9%. While growth in automobiles and machinery equipment boosted regional manufacturing indicators, the petrochemical sector moved in the opposite direction, resulting in a separation between the overall economy and the chemical industry's cycle. Integrated regional data on capacity utilization rates, spreads, and break-even points by product were not disclosed. If the sector remains overshadowed by the growth of other key industries during the 2026–2028 period, damage to facilities, employment, and cooperation networks will appear as lagging statistics.  The slump in Ulsan's petrochemical industry represents a structural risk inherent to the sector that cannot be explained solely by regional business cycles.

The Special Act on Strengthening the Competitiveness of the Petrochemical Industry, enacted in December 2025, took effect in April 2026, and the government approved the suspension of NCC operations and business consolidation in Daesan and Yeosu in 2026. While the response to the short-term downturn has shifted from financial support to facility reduction and corporate consolidation, concrete plans for adjusting production capacity in Ulsan have not been confirmed at the same level. If other complexes reorganize their facilities and product lines first over the next two to three years, Ulsan will have to endure price competition while maintaining excess capacity.  The very fact that the national response has entered the facility reorganization phase confirms the structural nature of the current crisis.

In June 2025, Ulsan’s chemical product production decreased by 3.3% and shipments by 4.1% compared to the same month of the previous year. In February 2026, chemical product shipments fell by 5.8% and inventories increased by 9.7%, while production in March dropped by 9.9%. Although the structure has shifted from temporary production adjustments to a combination of weakened shipments and inventory burdens, recovery capabilities by product category remain indistinguishable. If demand for general-purpose products does not recover by 2028, production cuts will lead to a prolonged burden of fixed costs rather than a recovery in profits.  The current signal for Ulsan’s petrochemical industry is not a single-month fluctuation, but a combined deterioration in production, shipments, and inventory.

The Korea Institute for Industrial Economics and Trade (KIET) presented the simultaneous rise in China's petrochemical self-sufficiency and the expansion of ethane-based production in the United States. While the export structure, which previously absorbed increased demand, is now caught between China's import substitution and the influx of low-cost U.S. products into Asia, the cost advantage of Ulsan companies by product cannot be determined solely from publicly available data. Even if oil prices fall or the Chinese economy recovers over the next two to three years, the extent of margin recovery will be limited unless supply capacity itself decreases.  Although the possibility of demand recovery exists, the likelihood of a return to past profit structures remains low.

While the petrochemical market has traditionally fluctuated based on demand, oil prices, and inventory cycles, China's rising self-sufficiency and the operation of new large-scale facilities are currently structurally reducing import demand. Although the cause of the downturn has shifted from delayed demand to a change in suppliers by major purchasing countries, the markets and product proportions capable of replacing Ulsan's dependence on China remain unconfirmed. If the surplus volume within China shifts to exports in two to three years, Korea will simultaneously face the loss of existing markets and price competition from third nations.  The current crisis is not a bottoming out of the economy, but rather a warning regarding an industrial structure compounded by changes in the trade structure.

Forecasts have also been presented suggesting that supply pressures will be partially alleviated in the second half of 2025 due to the recovery of demand in China's downstream industries and the closure of aging facilities in Europe and Japan. Even if the decline in global supply leads to a short-term improvement in market conditions, China's self-sufficiency and the U.S.'s advantage in raw material costs will persist. It remains unconfirmed whether Ulsan possesses a common assessment framework to distinguish between a short-term rise in spreads and a recovery in structural competitiveness. If the rebound expected between 2026 and 2028 is mistaken for normalization, the timing for facility and product restructuring will be delayed again.  Short-term market improvement is not proof of structural risk but rather a variable that extends the timeline for restructuring.

Ulsan is the nation's largest chemical industry cluster, connecting oil refining, NCCs, synthetic resins, fine chemicals, automobiles, and shipbuilding through pipelines and logistics networks. While the proximity of raw materials, intermediate goods, and demand industries creates higher integrated efficiency than a single plant, the extent to which company-specific optimization has extended to the optimization of raw materials and energy for the entire industrial complex remains undisclosed. If individual companies proceed with production cuts and business divestitures in a fragmented manner over the next two to three years, this connectivity will function as a channel for chain shocks rather than a strength.  Ulsan's industrial agglomeration presents a dual structure: it serves as a competitive asset while simultaneously amplifying the risk of simultaneous insolvency.

Ulsan possesses demand industries for high-performance materials, such as automobiles, shipbuilding, secondary batteries, and non-ferrous metals. While the physical conditions are in place to shift from an export structure centered on general-purpose products to one involving joint development of materials with local demand industries, the sales proportion of jointly developed products and import substitution performance have not yet been confirmed. If the material certification cycles of demand companies expire within two to three years, the entry of latecomer materials will be delayed again for several years.  Although the concentration of demand industries is a confirmed asset, the extent to which it has been converted into high-value-added revenue remains unconfirmed.

The government approved the suspension of Lotte Chemical's 1.1 million-ton NCC operations as part of the 2026 business restructuring in Daesan, and approved the integration of the NCC with basic materials businesses, such as PE and PP, in Yeosu. While the focus of competitive response has shifted from cost reductions at individual plants to the reduction of national production capacity and corporate mergers, the specific scope of adjustments for general-purpose product facilities in Ulsan has not yet been determined. If reduction effects in other regions do not automatically translate into price recovery in Ulsan, pressure for further cuts will shift to Ulsan in two to three years.  The domestic oversupply has moved beyond the declaration stage and entered the actual phase of facility closures and integration.

China's production expansion reduces domestic imports while simultaneously increasing the likelihood of surplus products flowing overseas. Although the structure is such that Asian prices cannot recover solely through domestic cuts, the assessment of Ulsan's profitability remains heavily tied to domestic facility adjustments and expectations for China's economic recovery. If export pressure from China persists until 2028, it will be difficult to restore margins on general-purpose products through the reduction of domestic production capacity alone.  The risk of oversupply in Ulsan is a structural risk in East Asia that will not be resolved by domestic adjustments.

While Korea's naphtha-based NCCs are sensitive to crude oil and naphtha prices and exchange rates, the United States is expanding ethylene production based on low-cost ethane feedstocks. Although product competition has shifted from facility scale to differences in feedstock channels, it remains unclear whether the extent of integrated cost reductions in Ulsan offsets the gap in raw material costs. If additional U.S. imports flow into the Asian market over the next two to three years, Ulsan's general-purpose products will face dual price pressure caught between Chinese and U.S. imports.  The cost disadvantage of Ulsan's general-purpose products is a raw material structure issue that is difficult to resolve solely through process efficiency improvements.

The integration of refining and petrochemicals in Ulsan provides efficiency in naphtha procurement and byproduct utilization. However, as global competition shifts toward a multi-fuel system involving ethane, bio-fuels, and recycled materials, the asset value of existing integrated processes has become relative, and the commercial input share of alternative materials remains unconfirmed. If carbon prices and customer demand for recycled materials rise simultaneously between 2026 and 2028, existing integrated facilities will increase transition costs rather than economies of scale.  While Ulsan's integrated facilities are currently efficient assets, their future fuel flexibility is assessed as low.

The Korea Institute for Industrial Economics and Trade (KIET) projected that in the Chinese market as well, demand for high-performance plastics for electric vehicles and high-performance films for packaging would increase, while demand for construction materials would decrease. Although demand has diversified from general-purpose products to performance materials tailored to specific applications, the proportion of sales and operating profits from high-value-added products in Ulsan is not confirmed at the regional level, aside from company-specific figures. If a small number of high-value-added products fail to offset losses from general-purpose facilities over the next two to three years, the gap between the announced transition and the profit and loss structure will widen.  While the transition to high-value-added products is underway, there is insufficient evidence to suggest that it has altered the overall profit structure of Ulsan's industry.

The structure of high-value-added materials involves fixed transactions following joint development with clients, long-term testing, and quality certification. Unlike general-purpose products, revenue is not generated immediately after facility conversion; however, Ulsan's joint certification pipeline between material companies and demand firms is not measured externally. If a sufficient range of certified products is not accumulated by 2028, a gap will occur between the reduction of general-purpose products and the formation of new revenue.  The risk to Ulsan's transition to high-value-added materials lies in the delay in the timing of commercial revenue generation, rather than in technology development.

The EU and global demand companies are expanding the disclosure of product carbon footprints, recycled materials, and supply chain emissions. While competitive standards for chemical products have expanded from price and physical properties to include raw material sources and lifecycle carbon information, the level of interoperability for product-specific carbon data within the Ulsan Industrial Complex remains unconfirmed. If customer procurement standards are tightened within two to three years, products without data will face verification costs and transaction delays regardless of actual emissions.  The Ulsan petrochemical industry is facing transition pressure not only in production facilities but also in product carbon data.

The utilization of waste plastic pyrolysis oil and bio-raw materials has been presented as a domestic industrial outlook and a task for institutional improvement. Although the raw material structure has shifted from a single system of fossil naphtha to a mixed system of circular and bio-raw materials, Ulsan's commercial production volume and cost competitiveness compared to existing raw materials have not been confirmed. If recycled raw material certifications and supply chains are secured by 2026–2028, it will be difficult to secure long-term purchase contracts through subsequent capacity expansions alone.  The transition to circular raw materials is currently in the demonstration and investment phases and has not yet reached an industrial scale capable of replacing general-purpose facilities.

The Special Act on the Petrochemical Industry was enacted in April 2026, followed by the approval of business restructuring in Daesan and Yeosu. While the national readiness level has moved to the legal basis and initial reduction implementation phases, the determination regarding the retention, consolidation, or closure of individual facilities in Ulsan has not been disclosed. If regional restructuring plans are delayed for the next two to three years, the costs of subsequent adjustments will be borne following the prior adjustments of other complexes.  The national readiness level is "entering implementation," while Ulsan's structural restructuring readiness level is "decision reserved."

Ulsan Nam-gu was designated as a preemptive response area for employment and industrial crises due to the petrochemical downturn and was included in the list of targets for tax support in 2026. While the perception of the crisis has been established at the administrative level, a public monitoring system linking company-specific production capacity, employment, and partner company risks has not been confirmed. If the management of support targets precedes the measurement of structural changes until 2028, the magnitude of the risk will be determined only after business closures and unemployment occur.  The region's perception of the crisis is high, but the resolution of public disclosure regarding structural diagnoses is low.

In Daesan, the operation of the 1.1 million-ton NCC has been suspended, while in Yeosu, the integration of the NCC with the PE and PP businesses has been approved. Domestic business restructuring has spread to actual asset adjustments, but no confirmed cases of the same scale have been identified in Ulsan. If restructuring in Ulsan does not materialize within two to three years, the regional disparity in the speed of adjusting overcapacity will translate into a cost gap.  Domestic expansion has been confirmed, but expansion in Ulsan remains unconfirmed.

Ulsan's integrated pipe rack and shared industrial complex infrastructure enhance physical connectivity between companies. However, the joint operational outcomes of raw material exchange, energy sharing, facility integration, and production planning optimization are not separated from the publicly available data. If individual production cuts proceed without joint optimization between 2026 and 2028, idle facilities and pipeline fixed costs will be transferred to the remaining companies. While  physical linkages have expanded, operational linkages in business restructuring have not been determined.

The government and Ulsan City have included the research and development and commercialization of eco-friendly and high-value-added materials within the scope of crisis response. While the scope of support has expanded from defending general-purpose products to developing new materials, regional achievements confirmed by commercial production, long-term supply contracts, and operating profits remain limited. An increase in the number of R&D projects over the next two to three years is insufficient to offset the decline in sales of general-purpose products.  The diffusion of technology development has been confirmed, but the expansion of the profit structure remains unconfirmed.

Conditions for demonstrating high-performance materials exist because demand industries for automobiles, shipbuilding, and secondary batteries are concentrated in Ulsan. However, the proportion of local internal purchasing and the growth rate of jointly certified products are not disclosed. If a company fails to enter the supply chain of local demand firms by 2028, geographical proximity is not converted into a transactional advantage.  Inter-industry proximity is assessed as high, while the regional exclusivity of material transactions is judged to be low.

Petrochemical processes have long utilized sensors, distributed control systems, and process optimization software. While the digital infrastructure is more mature than in other manufacturing sectors, the economic benefits of AI integrating and optimizing energy, raw materials, yield, and maintenance are disclosed only on a company-by-company basis. Unless the performance gap between existing automatic control and autonomous optimization is verified over the next two to three years, AX investments will remain merely as system replacement costs.  Process digitalization is high, but the widespread adoption of AI autonomous operation remains unconfirmed.

Companies within industrial complexes each possess process, raw material, and energy data. While the unit of optimization remains at the individual factory level, no data structure has been identified to jointly predict the flow of steam, electricity, hydrogen, and byproducts across the entire complex. If data connectivity crossing corporate boundaries is not established by 2028, the energy efficiency of the industrial complex will remain fixed at the level of individual optimization.  Corporate AX exists, but the readiness level of Industrial Complex AX is low.

The special act is a temporary law valid until December 31, 2028, and the business restructuring in Daesan and Yeosu has already entered the approval stage. Although the timeline for implementing the system and corporate restructuring has been compressed to just over two years, the finalized restructuring plan for Ulsan has not been confirmed externally. If asset adjustments are not finalized within the law's intensive support period, subsequent restructuring costs and employment shocks will be concentrated in the region.  The structure is such that the "golden time" for Ulsan's petrochemical industry closes before 2028, both legally and industrially.

The deterioration in shipments and production of chemical products in Ulsan during February and March 2026 is a current reality, not a future forecast. As periods of deficits or low profitability persist, companies prioritize protecting cash flow over investing in new materials, yet investment capacity by individual plant is not disclosed. In two to three years, when financial capacity is weakened, it will be difficult to simultaneously manage the transition to high-value products and facility reduction.  The time risk lies in the premature depletion of transition funds rather than the delay in market recovery.

For high-value-added materials, it becomes more difficult for new suppliers to enter the market as customer certifications and long-term supply histories accumulate. If companies in China, the U.S., and Japan accumulate certification data for growth products first, Ulsan companies face a time lag for commercial entry even after technological development. If the range of certified products is not expanded by 2028, the decline in general-purpose products cannot be replaced in the short term.  The gap in customer relationships in the high-value-added market is cumulative over time and highly irreversible.

The downsizing of facilities in petrochemical complexes simultaneously lowers the utilization rates of pipelines, utilities, ports, and partner companies. If the shutdown of a core plant cuts off the flow of raw materials and by-products to surrounding companies, it becomes difficult to restore the existing ecosystem by restarting only individual facilities. If disorderly production cuts continue for two to three years, the industrial agglomeration itself will gradually disintegrate.  The irreversible risk for Ulsan is the collapse of the critical point of the interconnected industrial ecosystem, rather than the closure of a single plant.

Compression judgment: If the reduction of general-purpose facilities, joint optimization of industrial complexes, and certified high-value-added sales are not simultaneously confirmed before 2028, Ulsan's transition will end in a crisis delay rather than structural improvement.

The Ulsan petrochemical crisis is assessed as a complex crisis with 30% business cycle and 70% industrial structure .

With China's self-sufficiency, the U.S. advantage in raw material costs, domestic overcapacity, reliance on general-purpose products, and changes in carbon and circular raw material standards all operating simultaneously, it is unlikely that the past profit structure will be restored solely by economic recovery.

Ulsan is assessed as strong in industrial clustering, demand industries, logistics, and process operations , but weak in the degree of facility reorganization ,  high value-added sales, raw material flexibility, and complex data connectivity .

Golden Time Judgment: Industrial Cluster Strength + Structural Overcapacity Lock-in Risk

Evidence Sources

• Statistics Korea, Industrial Activity Trends in Ulsan Metropolitan City, June 2025
• Statistics Korea, Industrial Activity Trends in Ulsan Metropolitan City, February 2026
• Statistics Korea, Industrial Activity Trends in Ulsan Metropolitan City, March 2026
• Korea Institute for Industrial Economics & Trade, Economic and Industrial Outlook for the Second Half of 2025
• Ministry of Trade, Industry and Energy, First Petrochemical Business Restructuring Project
• Ministry of Trade, Industry and Energy Approves Yeosu Petrochemical Business Restructuring
• National Law Information Center, Special Act on Strengthening and Supporting the Competitiveness of the Petrochemical Industry
• Ulsan Metropolitan City, Regional Response to Petrochemical Crisis

Structural Insight — Industrial Agglomeration Helps Withstand Recessions but Delays Restructuring

The competitiveness of the Ulsan Petrochemical Complex is formed by an integrated structure in which refining, NCCs, intermediate goods, synthetic resins, and demand industries are interconnected. This same connectivity makes it difficult to determine which facilities to reduce. Since the reduction of one plant alters the raw material, byproduct, and utility costs of other companies, inefficient facilities cannot be isolated in isolation.

The stronger the connectivity, the more companies consider the chain effects of the entire complex rather than individual profits and losses. As a result, capacity utilization adjustments are repeated, but permanent reductions are delayed, and low-profit facilities persist under the guise of industrial ecosystem maintenance costs. This is the point where the strength of agglomeration is reversed into a delaying mechanism for restructuring.

However, if production cuts are prolonged, unit costs for pipelines and utilities rise, and the revenue base of partner companies weakens. Delaying planned reductions results in an unplanned contraction of the ecosystem. At this stage, the economic viability of the entire industrial complex network is compromised, rather than the survival of a single facility.

The structural question for Ulsan's petrochemical industry is not how long to maintain the plants. If  data fails to determine which connections to preserve and which to dismantle, the strengths of industrial agglomeration turn into the greatest irreversible risk.