Cracker Margins at Their Lowest in a Decade
As the price of ethylene, which is called “the rice of the petrochemical industry” in South Korea, hit the 10-year low, the second quarter earnings of Lotte Chemical Corp. and LG Chem Ltd., the two largest chemical companies in the country, were directly hit. The two firms announced on Aug. 5 that their operating profits in the second quarter plunged some 50 percent and 60 percent, respectively.
Ethylene had been a lucrative product until last year, but not anymore, according to petrochemical industry sources on Aug. 5. The price of ethylene was US$761 (924,000 won) per ton last month, nearly halved from US$1,380 (1.67 million won) a year earlier.
In addition, demand for petroleum has slowed due to a prolonged trade dispute between the United States and China. The price of naphtha has been on the rise, while the prices of petrochemical products, such as ethylene and paraxylene (PX), have decreased, leading to a lower cracker margin.
Lotte Chemical announced that it posted 4.03 trillion won (US$3.33 billion) in consolidated sales, 346.10 billion won (US$185.18 million) in operating profit and 271.30 billion won (US$223.55 million) in net profit in the second quarter. Its sales fell 6.8 percent from last year, operating profits 50.6 percent and net profits 53.1 percent.
LG Chem is also in a similar situation. The company recorded sales of 7.18 trillion won (US$5.87 billion), operating profits of 267.50 billion won (US$220.49 million) and net profits of 83.80 billion won (US$69.07 million) in the same quarter. Its sales grew 1.8 percent compared to last year but its operating profits and net profits dropped 62 percent and 83 percent, respectively.