*

South Korea's petrochemical sector to cut capacity to

boost

efficiency

*

Government to ease regulations, offer financial support

for

restructuring

*

Global petrochemical margins unlikely to recover before

2027,

analysts say

SEOUL, Aug 20 (Reuters) -

Ten South Korean petrochemical companies have agreed to

restructure their operations, including large cuts to their

naphtha-cracking capacity, government officials said on

Wednesday.

South Korea's government has been putting pressure on a

petrochemical sector it says is in "crisis" to speed up

restructuring to boost efficiency and raise flagging margins.

Executives from the companies will sign an industry-wide

agreement for restructuring at a meeting attended by the trade

minister, Finance Minister Koo Yun-cheol said in a statement.

The companies have agreed to reduce their annual

naphtha-cracking capacity by between 2.7 million and 3.7 million

metric tons, the country's trade ministry said. That would mean

shutting down as much as 25% of the country's annual capacity,

according to Reuters calculations based on total capacity of

14.7 million tons.

The companies will need to submit an outline on how the

cuts will be done by the end of the year, the statement said.

"The key for overcoming this crisis is clear - reducing

capacity and restoring fundamental competitiveness," Koo said.

The petrochemical industry made a mistake by allowing

overcapacity and failing to shift to making higher-value

products, he said, urging them to learn from Korea's

shipbuilding industry that has improved its financial position

through restructuring in recent years.

The government will ease regulations and offer financial

and taxation support for companies that sincerely make efforts

to rescue themselves, he said.

Authorities would not tolerate any "free riders"

expecting government aid without making an effort to

restructure, Koo said.

South Korea is one of the world's largest importers of

naphtha, an oil product that is broken down into chemicals used

in plastics for automobiles, electronics, clothing and

construction. If the country is forced to cut capacity, it could

impact global oil markets.

RESTRUCTURING GOALS

The Korean government has set three goals for the

restructuring, reducing overcapacity and facilities, improving

finances at companies and minimising the impact on local

economies and jobs, the trade ministry said in a statement on

Wednesday.

The government will seek to restructure three industrial

complexes in the country simultaneously and offer a package of

comprehensive support for the industry, it said.

The government is considering designating the city of

Seosan, a major petrochemical hub, as an industrial crisis zone

so they can offer subsidies or loans to communities potentially

affected by the restructuring, the ministry added. Yeosu was

also categorised as this way in May.

Margins have plunged for petrochemical companies in South

Korea and across the globe due to an oversupply of products

caused by relentless capacity additions in the last decade,

particularly in China, the world's biggest petrochemical market.

Demand has also been sluggish over the last four years.

Analysts do not expect global petrochemical margins to

recover before 2027.

South Korean President Lee Jae Myung, who took office after

a snap election in June, pledged during his campaign to pursue

tax support for mergers and acquisitions in the petrochemical

industry, and to exempt companies from antitrust regulations to

allow more coordination of production and operations.