Lotte Chemical sells JV stakes in China, eyes other profitable markets

South Korea’s Lotte Chemical Corp. has sold its entire stakes in joint ventures with Chinese partners as the Korean company faces a supply glut amid weak demand in the world’s second-largest economy.

The petrochemical unit of Lotte Group, Korea’s fifth-largest conglomerate, recently sold its stake in the JV, Lotte Chemical Jiaxing Corp., to its local partner, industry sources said on Monday.

The JV located in Jiaxing, Zhejiang Province, produces ethylene oxide adduct (EOA) and ethanolamine (ETA), raw materials for cement and detergents.

The stake sale follows Lotte’s divestment of its stake in another JV, Lotte Sanjiang Chemical Co., in Jiaxing, to its Chinese partners in June.

With the sale of its stakes in the two joint ventures, Lotte Chemical is pulling out of its base petrochemical product manufacturing business in China.

The deal values weren’t known, but Lotte is estimated to have fetched less than 100 billion won ($74 million) from each of the two joint ventures, sources said.

The divestments come as Lotte Chemical’s Chinese business is reeling from years of losses amid an aggressive production ramp-up by Chinese rivals, forcing product prices to fall below breakeven points.

SUPPLY GLUT IN CHINA

The ethylene spread, or the price of ethylene products minus naphtha costs, has been subdued since early last year due to weak global economic conditions, which in turn, forced Lotte Chemical to post operating losses for five consecutive quarters since the second quarter of 2022.

According to the China Petroleum and Chemical Industry Federation (CPCIF), the country’s ethylene production capacity stood at 47 million tons in 2022 while actual sales reached 44 million tons.

With the additional capacity ramp-up of 13.7 million tons expected by the end of next year, China’s ethylene market is set to enter an oversupply market, industry officials said.

TO FOCUS ON VALUE-ADDED, SPECIALITY PRODUCTS

While reducing its production of base chemicals, Lotte plans to aggressively boost its output of value-added specialty products, including acrylonitrile butadiene styrene (ABS), and raw materials used in batteries such as copper foil, separators and solar cell materials.

“We will continue to sell non-core businesses around the world while focusing on more profitable specialty products,” said Lotte Chemical Vice Chairman Kim Gyo-hyun.

Lotte Chemical aims to raise its value-added product proportion to 60% by 2032 from 47% in 2022, Lotte officials said.

The company has been selling unprofitable overseas affiliates, including a Pakistani unit for purified terephthalic acid production for $155.8 million in January.

It closed its Poland-based sales entity in May and transferred the role to its German affiliate.

Lotte Chemical has been diversifying its business portfolio from petrochemicals into other areas, including eco-friendly projects and high-performance solid-state batteries.

Last year, the company launched a $200 million joint venture with US battery startup Soelect Inc.

SOUTHEAST ASIAN MARKET FOR GENERAL-PURPOSE PRODUCTS

Lotte Chemical plans to increase its sales of general-purpose products in the fast-growing Southeast Asian markets.

It is currently building a $3.9 billion petrochemical complex in Indonesia, due to be completed by 2025.

China will account for 15% of the company’s global base chemical production by 2025, down from an estimated 17% this year.

The US and Europe will be Lotte’s main markets for high-value, specialty products going forward, company officials said.

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

In-Soo Nam edited this article.