LG to slim down petrochem as Chinese rivals creep up

South Korea’s LG Chem Ltd. is speeding up restructuring efforts to sell or downsize uncompetitive businesses, with an aim to focus on three growth drivers: battery materials, eco-friendly businesses and new drug development.

Earlier this month, it sold the in vitro diagnostics business of its life science division to Seoul-based Glenwood Private Equity for 150 billion won ($117 million).

Now it is seeking to offload a minority stake in LG Energy Solution Ltd. to raise about 2 trillion won. LG Chem owns 81.84% of LG Energy, the world’s second-largest rechargeable battery maker.

“We will carry out bold and preemptive restructuring for marginal businesses,” LG Chem’s petrochemical business head Roh Kuk-rae said in an email message to its employees on Monday.

“We cannot delay restructuring of marginal businesses that are not competitive.”

The restructuring will include suspending facility operations for a longer period of time, withdrawing from some businesses and securitizing assets by selling stakes or establishing joint ventures. That will lead to the redeployment of some employees.

Such moves are part of efforts to brace for the deteriorating macroeconomic environment as LG is grappling with the rising threat from Chinese rivals in the subdued petrochemical market.

“In addition to domestic refiners’ entry into the petrochemical industry, Chinese companies’ rush to build and expand oil refining complexes integrated with petrochemical production lines is driving us to a marginal situation,” Roh noted.

“There are an increasing number of products of which the selling prices do not even reach the level of variable costs, so factories cannot operate.”

The petrochemical division has been extending losses. It reported an operating loss of 50.8 billion won ($40 million) in the first quarter of this year, after suffering a 165.9 billion won shortfall three months before. The division has a total of 5,000 employees at home and abroad.

It produces petroleum-based plastic materials such as ethylene, phenol and ABS resins, most of which are now classified as conventional products.

“We decided to shed non-core businesses and focus on new drug development for global markets,” said an LG Chem official.

It is also restructuring its battery materials business by relocating to upgraded facilities.

The LG Group unit is seeking to sell a cathode production factory in Iksan, North Jeolla Province, with an annual production capacity of 4,000 tons of cathode materials.

The Iksan facility is much smaller than its two other domestic plants: one in Cheongju, North Chungcheong Province, with a capacity of 70,000 tons. A cathode factory in Gumi, North Gyeongsang Province, will be completed by the end of this year with a capacity of 60,000 tons.

LG is understood to be looking for a new factory site near its existing facility in Cheongju.

Its three key businesses are expected to generate a combined 40 trillion won in sales in 2030, accounting for 57% of the company’s total sales projection of 70 trillion won the same year.

It plans to spend more than 10 trillion won to expand its cathode production capacity and to develop silicon-based anode materials by 2028.

Write to Jae-Fu Kim and Hyung-Kyu Kim at hu@hankyung.com

Yeonhee Kim edited this article.