South Korea’s petrochemical restructuring is entering a decisive phase as a first major merger takes effect, testing whether shareholders and banks can shoulder the industry’s losses while new production complicates efforts to reduce excess capacity.

The September launch of H&L Advanced, combining Lotte Chemical’s Daesan operations with HD Hyundai Chemical, followed Seoul’s approval of a second agreement in Yeosu in July. Together, the deals aim to remove 2.49 million metric tons of annual ethylene production capacity. Ethylene is a basic ingredient in plastics and other chemicals.

But S-Oil’s Shaheen projectin Ulsan is expected to add 1.8 million metric