Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Petrochemical firms tighten belts to improve profits
Lotte Chemical's factory in Yeosu, South Jeolla Province / Courtesy of Lotte Chemical
By Park Jae-hyuk
LG, Lotte, Hanwha reconsider business plans
Petrochemical firms have reduced investments and scrapped their planned expansion of facilities, in response to delays in their earnings recovery amid lingering uncertainties about their business environments.
Lotte Chemical decided to cut its capital expenditure to 1.7 trillion won ($1.2 billion) next year from 3 trillion won this year. The decision was made as Lotte Group’s chemical unit suffered a 111.2 billion won operating loss during the second quarter, losing money for three consecutive quarters.
“We feel sorry for announcing the disappointing results that cannot satisfy our investors, who anticipated a significant earnings recovery during the second quarter,” Lotte Chemical Chief Financial Officer (CFO) Sung Nak-sun said during a conference call, Thursday.
“We will improve our cash flow by delaying our planned investments and cutting expenditures for assets that are strategically less important.”
The company also vowed to continue making efforts to unload unprofitable assets.
“It is difficult to sell our assets producing basic materials under the current market conditions, but some of our assets have drawn attention from investors,” Lotte Chemical Chief Strategy Officer Kim Min-woo said.
LG Chem, which had initially planned for 4 trillion won in capital expenditure this year, decided to invest only 3 trillion won in its facilities this year, as it posted an operating profit of 405.9 billion won during the second quarter, down 34.3 percent from a year earlier.
Although the company managed to start making profits from its petrochemical business for the first time in three quarters, it remains to be seen whether the profit-making will continue amid the oversupply of Chinese products and facility expansion costs in the Middle East.
“Considering volatile market conditions and uncertain economic situation, we will be more conservative in our investments,” LG Chem CFO Cha Dong-seok said during a conference call, July 25.
The chemical unit of LG Group will also reconsider its expansion in the battery separator business, considering a slow demand for the material and intensifying competition with Chinese rivals. Additionally, the company postponed its investments in the production of cathode materials, as major carmakers adjusted their strategies for electric vehicles.
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Last month, Hanwha Solutions replaced the CEOs of its Chemical Division, Qcells Division and Yeochun NCC.
The company tends to carry out executive reshuffles in August, so the abrupt replacement was interpreted as part of reform efforts amid snowballing losses. During the second quarter, Hanwha Solutions suffered a 107.8 billion won operating loss, losing money for two consecutive quarters.
“The new CEOs will preemptively draw up business strategies for next year,” Hanwha Group said in a press release.