South Korean chemical companies’ profits weighed down by costs

Latest News: Recently, major Korean chemical companies announced second-quarter earnings reports, which were generally mixed. LG Chem and Lotte Chemical, the two largest chemical companies in South Korea, were dragged down by rising raw material costs and falling demand; Kumho Petrochemical, Hanwha Solutions, S-Oil and other companies with large petrochemical businesses saw earnings decline. However, the profits of some petrochemical companies such as SK Innovation and special chemical companies such as Posco Chemical, Samsung SDI, and Songwon increased year-on-year. Sales of South Korean chemical companies rose in the second quarter, boosted by higher prices.

The profit of leading companies has been severely reduced

LG Chem’s second-quarter net profit was 718 billion won, down 54% year-on-year. The company’s quarterly operating profit also fell sharply, falling 59% year-on-year to 878 billion won, but sales revenue rose 7% year-on-year to 12.2 trillion won. In the second quarter, the profit of LG Chem’s petrochemical business unit fell by 61% year-on-year to 513 billion won, while sales revenue increased by 13.6% year-on-year to 5.9 trillion won. LG Chem forecasts that the difficult situation facing the company in the third quarter will continue due to sluggish global demand due to high oil prices and inflation. The company plans to make profits by strengthening sales activities centered on high value-added products.

According to the financial report released by Lotte Chemical, in the second quarter, the company’s net profit fell by 93% year-on-year to 36 billion won, and sales revenue increased by 26.6% year-on-year to 5.5 trillion won. The company’s operating loss in the second quarter was 21 billion won, compared with an operating profit of 501 billion won in the same period last year. In the second quarter, Lotte Chemical’s basic chemicals division reported an operating loss of 8 billion won, compared with an operating profit of 326 billion won in the same period a year earlier, while sales revenue rose 36 percent year-on-year to 3.4 trillion won. Lotte Chemical said the sharp drop in second-quarter net profit from a year earlier was partly due to the shutdown of Lotte’s production base in Yeosu, South Korea. In addition, weak global demand and soaring raw material costs also affected the company’s earnings. Lotte Chemical warned that the outlook for the company’s basic chemicals business was likely to deteriorate further in the third quarter due to weak global demand due to inflation and the Covid-19 pandemic.

Multiple companies are subject to raw material costs

In the second quarter, in addition to the two leading companies, many Korean chemical companies also experienced declining profits. Rising costs and sluggish demand are affecting the profitability of Korean chemical companies.

Kumho Petrochemical’s sales revenue in the second quarter increased by 2% year-on-year to 2.2 trillion won, while net profit fell by 51% year-on-year to 286.9 billion won. The profitability of Kumho Petrochemical’s synthetic rubber business was hurt by lower prices for nitrile rubber latex gloves and increased competition. The business also faces rising raw material costs. Kumho Petrochemical expects the market price of butadiene to decline in the third quarter due to weak downstream demand and new capacity. The company added that demand may weaken due to a worsening economy. For nitrile latex, the company expects lower demand and prices.

The chemical business unit of Hanwha Solutions reported second-quarter sales revenue of 1.6 trillion won, up 20.3% year-on-year, while operating profit fell 22% year-on-year to 228 billion won. Hanwha Solutions believes that the low-density polyethylene (LDPE) market will continue to be sluggish due to sluggish demand due to the recession and increased supply due to increased global capacity. For the polyvinyl chloride business, Hanwha predicts that the market will soften due to concerns about a global recession.

S-Oil’s petrochemical business posted operating profit of 18 billion won in the second quarter, down 85.6% year-on-year, while operating income rose 8.2% year-on-year to 1.3 trillion won. The company expects paraxylene prices to remain down in the third quarter as new capacity in China comes on stream.

Hyosung Chemical’s sales revenue in the second quarter increased by 23.8% year-on-year to 766.4 billion won, but there was a net loss of 87.7 billion won, compared with a net profit of 46.8 billion won in the same period last year. The company said profitability was being squeezed by persistent inflation as well as ongoing inventory losses.

Specialty Chemicals Profit Guaranteed

In the second quarter, only a small number of Korean chemical companies saw significant profit growth. Without exception, these enterprises have “one skill”, and their specialty chemicals, which are advantageous products, have not been affected by the current economic situation, and thus have obtained good profits.

In the second quarter, SK Innovation’s petrochemical business unit posted operating profit of KRW 76 billion and sales revenue of KRW 2.8 trillion. Petrochemicals operating profit rose sequentially due to lower naphtha costs, the impact of inventory values ​​and higher fixed costs, resulting in a significant increase in the spread between paraxylene and feedstocks, resulting in improved margins. SK Innovation predicts that PE and PP profit margins will improve in the third quarter. In the aromatics business, the company expects xylene profit margins to be flat in the second half of the year due to new capacity in Asia.

Posco’s sales revenue in the second quarter of this year was 803 billion won, a sharp increase from 480 billion won in the same period last year. In the second quarter, it realized a profit of 36 billion won, a year-on-year increase of 36%. Sales revenue from the company’s battery cathode business more than doubled in the second quarter from 166.7 billion won in the same period last year to 346.8 billion won, mainly due to higher prices for lithium and other metals.

Songwon achieved consolidated sales of KRW 342.7 billion in the second quarter, a 47.7% increase in revenue compared to the second quarter of 2021. Operating profit was 5.4 billion won, a year-on-year increase of 150%. Demand levels remained high in the company’s Chemical Materials and Performance Chemicals divisions, resulting in a solid quarter with profitability and returns climbing again.