The domestic chemical industry saw the best-ever results in the second quarter of this year, recovering from the slump last year. Chemical companies believe that such a boom will continue until this year, but they are making efforts to strengthen business competitiveness in order to prepare for possible slumps in the future.
According to industry sources on July 28, major domestic chemical companies including LG Chem and Hyosung are posting the best results ever in the second quarter. Hyosung recorded 255 billion won (US$218.6 million) in operating profits, which is much higher than market expectations. It is also the highest figure for a single quarter. LG Chem also posted 563.4 billion won (US$482.98 million) in operating profits in the second quarter. The figure is up 56.7 percent from the same period last year.
Lotte Chemical reported operating profits up by 160 percent from a year earlier in the first quarter, and is expected to record some 500 billion won (US$428.63 million), which is the largest ever, in the second quarter. Hanwha Chemical also expects to see an improvement of its performance in the second quarter thanks to better results in the petrochemical sector and a turnaround in the solar power sector.
Industry watchers say that it is largely due to, demand increase, short supply, and the stabilization of low oil prices. According to the Korea Petrochemical Industry Association, the price of the average ethylene spread in the second quarter stood at US$847 (988,026 won), up as much as 61 percent from a year ago. Ethylene spread is naphtha prices subtracted from ethylene prices. The higher the number is, the higher a company will earn.
They also say that naphtha cracking centers (NCCs) in some Asian regions sequentially completed routine maintenance in the first half of the year, which is a major reason of the spread increase. The balance of demand and supply, however, will continue for a while, since some NCCs will start routine maintenance in the second half of this year.
However, industry sources have negative views on whether such a boom will last until next year. Due to the increase of petrochemical self-sufficiency in China and petrochemical facilities in India and the Middle East, general-purpose petrochemical products will experience supply excesses shortly.
Regarding this, domestic chemical firms are coming up with various measures to brace for bad business conditions in the future, such as fostering new businesses, reorganizing businesses, and slimming down the workforce. Hanwha Chemical has merged two of its chemical compounds to improve competitiveness in high-value-added materials. LG Chem is getting ready to diversify its business portfolio by strengthening its battery business for cars and future IT devices and developing new materials for energy. Lotte Chemical has joined hands with petrochemical firms in the U.S. to improve cost competitiveness by increasing ethylene production.