After dismal Q3, Korean petrochemical firms face worse Q4

Kumho Petrochemical Co. [Provided by Maekyung Media Group]

Prospects for fourth-quarter earnings at South Korea’s petrochemical companies remain bleak despite their efforts to cut production rates and diversify portfolio to beat industrial downturn.

Spread on ethylene prices averaged at $180 per ton in the third quarter, about 35 percent lower than $278 in the first quarter, according to the petrochemical industry. This is a 46 percent decline from $335 in the third quarter of last year. The spread is the price of ethylene minus naphtha, and usually $300 is considered the break-even point.

Ethylene spread has been falling as naphtha prices remained high amid rising global crude prices. In contrast, demand for petrochemical product has weakened due to slowing global economy and higher raw material costs.

Petrochemical companies are faced with the worst conditions as demand deteriorates amid slowing global economy, according to an analyst at Heungkuk Securities Co.

Kumho Petrochemical Co. reported sales of 1.89 trillion won ($1.4 billion) in the third quarter and operating profit of 230.5 billion won, off 15.6 percent and 63.1 percent, respectively, from a year ago. By sector, synthetic rubber operations post an operating profit of 84 billion won, 62.2 percent lower than a year ago. It reported an operating loss of 6.2 billion won due to a decline in demand for home appliances.

Lotte Chemical Corp. also posted an operating loss in the third quarter. Losses could continue in the fourth quarter as more products will be processed using crude that was purchased at higher prices, a Heungkuk Securities analyst said.

Korea Petrochemical Ind. Co. reported an operating loss of 60.1 billion won in the third quarter with sales down 25.46 percent.

LG Chem Ltd. And Hanwha Solutions Corp. managed to weather the slump with their electric vehicle battery and solar power businesses.

LG Chem’s third-quarter operating profit rose 23.9 percent from a year ago to 901.2 billion won and sales was 33.8 percent higher at 14.18 trillion won. Hanwha Solutions posted sale of 3.37 trillion won and an operating profit of 348.4 billion won in the third quarter, up 30.4 percent and 95.3 percent than a year ago, respectively.

Green businesses helped to offset some of the deterioration in their mainstay petrochemical operation.

Petrochemical companies, such as LG Chem and Korea Petrochemical, are using this down period to carry out maintenances of their facilities to adjust output until market conditions recover.

By Pulse