(Yonhap)
South Korea’s petrochemical industry delivered solid performance in the first quarter on inventory valuation gains and higher product prices as the prolonged Middle East conflict drove up naphtha prices.
Lotte Chemical Corp. announced on Monday that its first-quarter sales stood at 4.99 trillion won ($3.38 billion) and operating profit at 73.5 billion won. This marks its first quarterly operating profit in 10 quarters since the third quarter of 2023.
The improvement was driven by stable performance in high-value-added businesses, including advanced materials and Lotte Fine Chemical Co., as well as lagging effects in the basic chemicals segment.
The lagging effect refers to profit fluctuations caused by the time gap between purchasing raw materials and producing and selling finished products.
“Profitability improved through optimized production,” said a Lotte Chemical official. “We plan to expand high value-added capacity, including engineering plastics production at a compounding plant scheduled for completion this year.”
The lagging effect linked to the Middle East war has also been reflected across the broader petrochemical sector. LG Chem Ltd.’s petrochemical division posted sales of 4.47 trillion won and operating profit of 165 billion won in the first quarter, swinging from a 56 billion won operating loss a year earlier.
Hanwha Solutions Corp.’s chemical division also swung to profit, with sales of 1.34 trillion won and operating profit of 34.1 billion won. SK geo centric Co., the petrochemical unit of SK innovation Co., is expected to report operating profit above 200 billion won when it releases earnings on Wednesday.
“Profitability improved as companies benefited from lower-cost feedstock amid rapidly rising raw material and petrochemical product prices,” an industry official said.
Factory utilization rates at major domestic petrochemical producers fell to the 50 percent range in March and April due to a shortage of Middle Eastern naphtha supply, but have since recovered as companies secured alternative supplies from the U.S., Algeria and Oman.
Government support also provided momentum, with a March supplementary budget introducing subsidies covering 50 percent of the increase in naphtha import costs for companies operating naphtha cracking centers (NCCs).
As a result, Yeochun NCC Co. raised utilization from 55 percent to 65 percent, while Lotte Chemical lifted operating rates at its Daesan NCC from the 70 percent range to 83 percent.
LG Chem plans to increase utilization at its Daesan and Yeosu NCC plants to 75 percent in the second quarter, and Korea Petrochemical Ind. Co. has raised utilization at its Ulsan NCC from 62 percent to 72 percent.
Despite the rebound, industry officials caution against optimism, saying the underlying cycle has not recovered and calling for accelerated restructuring to mitigate structural risks exposed by the Middle East conflict.
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