LG Chem challenges top latex player Kumho with aggressive expansion

South Korea’s top chemical maker LG Chem Ltd. has vowed to leapfrog crosstown rival Kumho Petrochemical Co. to become the world’s top latex maker by aggressively expanding its production capacity for the raw material in rubber gloves.

LG Chem said on Monday it plans to almost triple the annual capacity of its nitrile butadiene latex (NBL) plants in Korea, China and Malaysia to a combined 730,000 tons over the next couple of years from the current 270,000 tons.

For a longer-term goal, the company said it will expand its NBL output capacity to more than 1 million tons a year by 2025.

Currently, Kumho Petrochemical is the world’s top NB latex manufacturer with an annual production capacity of 640,000 tons.

NB latex is a type of synthetic latex used to make industrial, cooking and surgical gloves. Demand for the raw material in latex gloves has surged since early last year following the outbreak of the COVID-19 pandemic.

LG Chem said its facilities in China – Ningbo LG Yongxing Chemical Co. – has begun mass production earlier this month with an annual capacity of 100,000 tons. The output capacity at the Chinese factory will double to 210,000 tons a year by the first half of 2022, it said.

In Malaysia, LG said it will build a facility with an annual capacity of 240,000 tons in Pengerang, a district in southern Malaysia, through its joint venture with state-run petrochemical company Petronas Chemical Group.

LG owns 51% of the JV, which aims to begin mass production of NBL at the Malaysian plant in the first half of 2023.

CLOSER TO CLIENTS

“We’re going to quickly meet demand from our clients by launching more facilities in China and Malaysia, where a number of latex glove factories are located,” said an LG Chem official.

In Korea, LG Chem has already been expanding NBL facilities at its main plant in Yeosu, South Jeolla Province since late last year.

The Yeosu plant’s annual production capacity will rise from the current 170,000 tons to 280,000 tons by the end of the first half of next year.

LG entered the NB latex market in 2008, but had barely begun to expand its facilities until the relatively small latex glove market began exploding due to the coronavirus pandemic.

Demand for NB latex was hovering around 1 million tons a year in 2019, but almost doubled to 1.9 million tons in 2020 amid the widespread use of latex gloves during the pandemic.

Strong demand has pushed the prices of NBL to $2,000 per ton from less than $1,000 in July 2020. In China, where COVID-19 infections were rampant early last year, latex prices surged to $2,500 a ton.

KUMHO EYES FURTHER EXPANSION

Kumho Petrochemical is also moving to expand its capacity to maintain its market leadership.

Kumho said it plans to increase its production capacity by 70,000 tons to 710,000 tons a year by the end of this year.

It further aims to raise the capacity to 950,000 tons by the end of 2023, with an additional plan to expand by 470,000 tons later.

Kumho Petrochemical's NB latex margin rose to a record high of 50% in the first half of this year.

"Chemical product margins are considered to be favorable if they top 10%," said an industry official. "We’ve never seen a chemical product margin rise to the 50% range."

In early May, Kumho stunned the market with record quarterly revenue and profit.

Its revenue marked 1.85 trillion won ($1.65 billion) and its operating profit stood at 612.5 billion won ($545 million), both the highest quarterly numbers in the company’s history.

Analysts estimate Kumho’s second-quarter operating profit at around 700 billion won, a sixfold increase from a year ago.

While there are concerns over competitive capacity expansion among latex players, analysts expect the market to continue to grow even in the post-pandemic era amid the public's heightened awareness of sanitation and protection. 

According to the Malaysian Rubber Glove Manufacturers Association (MARGMA), global demand for latex gloves is forecast to grow to 410 billion units by 2024 from 200 billion units in 2020.

Write to Jae-Kwang Ahn at ahnjk@hankyung.com
In-Soo Nam edited this article.