Petrochemical firms struggle to make profit via drastic restructuring

The Korea Times

The Korea Times

Business

Tue, September 26, 2023 | 06:17

Companies

Petrochemical firms struggle to make profit via drastic restructuring

Posted : 2023-06-25 14:32

Updated : 2023-06-26 17:08

LG Chem's factory in Yeosu, South Jeolla Province / Courtesy of LG Chem

By Park Jae-hyuk

Korea's leading petrochemical firms are reorganizing their business portfolios, as uncertainties around the recovery of global manufacturing industries continue, according to industry officials, Sunday.

LG Chem is reportedly considering redeploying workers of its second naphtha cracking center in Yeosu, South Jeolla Province, which halted its operation recently. Earlier this month, the company also decided to sell its in vitro diagnostic device business to Glenwood Private Equity.

In addition, the chemical unit of LG Group is pushing ahead with the sale of its cathode materials factory in Iksan, North Jeolla Province, to New Power Plasma, a local semiconductor manufacturing equipment supplier.

The series of restructuring measures came after LG Chem CEO Shin Hak-cheol repeatedly emphasized the company's plans to focus on three new growth engines: battery materials, eco-friendly materials and innovative novel drugs.

"Due to the structural oversupply amid the sluggish global demand for petrochemical products, it is difficult to predict the timing of a recovery," LG Chem petrochemical business head Noh Kug-lae said in an email to employees last Monday. "We will reform our business structures and redeploy the workforce."

LG Chem is not ruling out the possibility of selling around a 2 percent stake in LG Energy Solution to secure around 2 trillion won ($1.5 billion) worth of cash for investments. The chemical firm currently holds an 81.84 percent stake in the battery maker.

"For our investments in the three new growth engines, we are considering various measures to raise funds, but nothing has been decided yet," LG Chem said in a regulatory filing last Wednesday.

Lotte Chemical decided recently to sell its entire 75 percent stake in its purified terephthalic acid manufacturing subsidiary in Pakistan to a local company there. Through the deal, the Korean firm is looking to secure around 200 billion won in order to invest in its new growth engines of hydrogen and battery materials.

In addition, the chemical unit of Lotte Group plans to cope with a liquidity crisis caused by its worsening credit rating.

After Lotte Chemical suffered quarterly losses for the fourth consecutive quarter, domestic credit rating agencies downgraded its credit rating this month. Lotte Group's other affiliates also faced credit downgrades as they have relied heavily on the chemical firm's cash flow.

"Lotte Chemical's second-quarter performance is expected to be better than the previous quarter's, but it is likely to face low profitability for a considerable amount of time," Kiwoom Securities analyst Chung Kyung-hee said in a report last Friday.

SKC is in talks with multiple potential buyers to sell SK Pucore, a polyurethane subsidiary. Last year, SKC also sold its industrial film business to Hahn & Company for $1.3 billion.

pjh@koreatimes.co.kr