Lotte Chem swings to red in Q2, hard hit by Malaysian unit's loss

South Korea’s major petrochemical producer Lotte Chemical Corp. faced an earnings shock in the second quarter of 2022, hard hit by the performance of Lotte Chemical Titan Holding Sdn Bhd, its Malaysia-based subsidiary.

Lotte Chemical swung to a loss in the second quarter compared with the same period in 2021, posting a 21.4 billion won ($16 million) operating loss.

Although the Korean chemical producer posted 5.5 trillion won in quarterly sales, up 26.6% from a year ago, Titan’s swing to the red impacted the parent company’s earnings. The Malaysian firm posted a 60 billion won operating loss in the second quarter, compared with its 119.9 billion won operating profit a year ago.  

Lotte Chemical acquired Titan for 1.5 trillion won in 2010 to expand business in Southeast Asia. Malaysia’s leading petrochemical company produces polyethylene and polypropylene by thermally decomposing naphtha.

As demand for petrochemical products soared following the peak of COVID-19, Titan logged 290 billion won in annual operating profit for 2021.

The Malaysian company’s operating loss in the April-June quarter came as the price spread between naphtha and ethylene narrowed earlier this year. The raw material naphtha’s price jumped, but petrochemical product prices remained steady or even dropped, mainly due to shrinking demand from China.

Titan’s earnings fluctuation during the petrochemical industry life cycle has aroused concerns about Lotte Chemical’s performance.      

In a bid to mitigate the fluctuations, Lotte Chemical is focusing on new business growth. The Korean company will invest 10 trillion won in its hydrogen and battery materials businesses by 2030, decreasing the firm’s reliance on petrochemical products, a Lotte Chemical official said.

As a part of these efforts, the Korean firm and Japanese trading house Itochu Corp. signed a memorandum of understanding last month to cooperate in the hydrogen and ammonia sectors, including hydrogen-ammonia market development. 

In June, Lotte Chemical, Korea’s SK Gas Co. and global industrial gas supplier Air Liquide’s Korean office joined forces to establish a JV for hydrogen fuel cell power plant construction in Ulsan, Korea by 2024. 

Lotte Chemical also participated in bidding for a 53.3% stake in Iljin Materials Co. in July alongside US private investment firm Bain Capital and a few unidentified strategic investors. Iljin Materials is a leading manufacturer of elecfoil, a thin copper foil used for cathode collectors in rechargeable lithium batteries.

Write to Ik-Hwan Kim at lovepen@hankyung.com
Jihyun Kim edited this article.