Lotte Chemical is pivoting towards its profitable advanced materials division amidst a downturn in the petrochemical industry and consecutive losses, aiming to leverage its technological edge over China while restructuring its basic chemical sector to focus on high-value-added industries.
The company’s basic chemical division, which used to be a cash cow, has taken a direct hit, especially before and after the COVID-19 pandemic. This is mainly due to China increasing its self-sufficiency through domestic expansion.
Lotte Chemical is planning to focus on improving its structure towards advanced materials which hold a technological competitive edge over Chinese products. According to the data from the Financial Supervisory Service’s Electronic Disclosure System, Lotte Chemical reported a revenue of 19.7 trillion won ($14.6 billion) and an operating loss of $143.9 million last year.
Although the loss was reduced compared to the previous year ($16.4 billion in revenue and an operating loss of $564.3 million), the company continued to face a deficit.
Lotte Chemical has been performing poorly mainly due to the decline in its basic chemical division, which accounts for around 70% of the total sales. This division deals with basic hydrocarbons and monomer products such as ethylene and propylene that are produced from naphtha cracking facilities and sells products like PE (polyethylene), PP (polypropylene), and BTX (aromatic hydrocarbons like benzene, toluene, xylene).
In 2021, the basic chemical division of the company generated nearly $666 million in operating profits.
However, the global economic slowdown from the following year has reduced the demand, and things worsened as China, the largest importer of petrochemical products, increased its self-sufficiency, leading to a decline in the industry. In 2022 and 2023, the basic chemical division of the company recorded operating losses of $409.3 million and $149.1 million, respectively.
The advanced materials division, which constitutes around 25% of the total sales, has been consistently profitable. The division’s primary products are ABS (Acrylonitrile Butadiene Styrene) and PC (Polycarbonate), which are high-heat resistant, high-strength, and high-impact functional plastics used in various electronic and IT devices and automotive materials.
In the previous year, the advanced materials division generated a revenue of $3 billion and an operating profit of $172 million, with the profit margin increasing by approximately 37% compared to the previous year.
Notably, in the third quarter of the previous year, Lotte Chemical attained profitability for the first time in six quarters, with an operating profit of $20.7 million, propelled by the advanced materials division’s operating profit of $55.8 million.
An insider from the petrochemical industry has stated “S. Korean companies have a comparative advantage over China in the field of advanced materials, which require higher technology than basic chemicals.”
Lotte Chemical has been restructuring its general material businesses with lower profitability to focus on high-value-added industries. Last year, the company sold off all of its general petrochemical product plants in China by divesting its stakes in Lotte Samkang Chemical and Lotte Chemical Jiaxing.
