The South Korean Ministry of Economy and Finance has unveiled its flexible tariff operation plan for 2025, which includes extending the zero tariff on crude oil used for naphtha production through next year. Announced on December 2, this decision aims to alleviate financial pressure on the petrochemical sector, which has been struggling with declining profits due to global economic instability and an oversupply in the market.

Since 2007, South Korea has employed a flexible tariff system for crude oil used in naphtha production, allowing the government to adjust tariffs based on economic conditions. Initially subject to a 3% tariff, the rate has fluctuated between 0-1% over the years. Between 2016 and 2022, a tariff of 0.5% was applied, but since 2023, a zero tariff has been in effect.

In May, the petrochemical industry requested the government continue the zero tariff on crude oil for naphtha production to help reduce costs. The Ministry of Economy and Finance responded positively by incorporating this measure into the 2025 tariff plan. According to the several media reports, the zero tariff would support the petrochemical sector, which is facing substantial profit declines due to global economic challenges and structural oversupply, and would encourage business restructuring and diversification.

In addition to the crude oil tariff extension, the government has also decided to apply a zero tariff on naphtha itself and continue flexible tariff support for liquefied natural gas (LNG) used in power generation and city gas during winter. This move replaces the standard 3% tariff with a zero rate during high-demand winter months. Furthermore, the flexible tariff of 0% for liquefied petroleum gas (LPG) used for cooking and transportation in rural areas, as well as for crude oil used in LPG production, will be extended through the first half of next year.

To further bolster the competitiveness of South Korea’s semiconductor and display industries, the government has added five new items to the list of products eligible for flexible tariffs. These items include copper foil for copper-clad laminate (CCL) and masks for organic material deposition (FMS), both crucial for the production of electronic devices.

The petrochemical industry is vital to South Korea’s economy, producing chemicals from petroleum and natural gas that are essential in manufacturing products such as plastics, fertilizers, and pharmaceuticals. Naphtha, a key feedstock, is particularly important for producing high-value chemicals and plastics. By extending the zero tariff on crude oil for naphtha production, the government aims to reduce production costs and support the industry as it navigates economic challenges.