[Companies Beyond COVID-19] Traditional Oil Giants, New Battery Leaders... The Power of New-Old Collaboration

ABS Leading Market Share Plays a Key Role

Petrochemical Operating Profit of 700 Billion KRW

One in Four Electric Vehicles Worldwide

Equipped with LG Chem Batteries

[Asia Economy Reporter Park So-yeon] LG Chem's ability to lead 'Manufacturing Korea' even amid the COVID-19 pandemic is analyzed to have been possible due to the simultaneous growth of its traditional petrochemical sector and the battery sector, classified as a new industry. In particular, the battery division has signaled the start of substantial profit realization with long-term investments and efforts such as aggressive capacity expansion based on orders and yield improvements, coinciding with the advent of the electric vehicle era.

◇ Dual Drive from Traditional and New Businesses Worked= The surprise third-quarter performance is the result of the harmony between traditional and new businesses. Key product lines such as high value-added synthetic resin (ABS), which holds the global number one market share, and electric vehicle batteries played a crucial role.

The securities industry estimates that LG Chem earned over 700 billion KRW in operating profit from the petrochemical sector alone in the third quarter. In October, the ABS spread (the price difference between product and raw materials) was $1,026 per ton, nearly double the $512 per ton recorded in January. This is the highest level in the past decade. LG Chem produces approximately 2 million tons of ABS annually and holds the number one global market share. Recently, with the spread of COVID-19 leading people to spend more time at home, demand for ABS used in home appliances surged. Additionally, since July, China has implemented a policy mandating helmet use for motorcycle and electric scooter riders, which is also analyzed to have contributed to the rise in ABS prices and margins.

Steadfast investment in the battery business is finally bearing fruit. In the battery division, supported by increased new electric vehicles in Europe and steady sales of Tesla Model 3 in China, performance has expanded, with the industry estimating operating profit around 150 billion KRW. According to SNE Research, a market research firm for electric vehicle batteries, LG Chem recorded the number one global market share in electric vehicle batteries through August this year. With a cumulative market share of 24.6%, one in every four electric vehicles sold worldwide this year is equipped with LG Chem batteries. The advanced materials business is also expected to have achieved higher performance than the previous quarter due to increased shipments of cathode materials, strong demand for polarizing films, and recovery in automobile sales.

Stable Strong Performance Expected in Q4

◇ Positive Outlook for Q4... Investment Momentum Rises with Battery Business Spin-off= Securities firms forecast continued stable strong performance in the fourth quarter. Demand for products such as ABS, driven by increased demand for home appliances, is expected to remain robust through November. LG Chem is currently operating its ABS plants at 100% capacity to meet supply. In the battery division, based on the profitability of the automotive battery sector in the second and third quarters, steady and stable profits are expected going forward.

Following LG Chem Vice Chairman Shin Hak-cheol's announcement of a new vision and call for structural reform in May, expectations are rising that the battery division's growth will become more pronounced. LG Chem has raised expectations for a successful physical spin-off by achieving results that exceed market expectations ahead of the planned spin-off of the battery business division at the end of this year.

LG Chem plans to separate the battery business division on December 1 and launch a separate company tentatively named "LG Energy Solution, Ltd." Through this, it aims to secure funds for expanding battery business investments. If it secures investment funds through an initial public offering (IPO) as early as the end of next year after the physical spin-off, it can cover annual battery business investment costs of around 3 trillion KRW, reducing debt burden. This will enable aggressive investments, and there are forecasts that a quantum leap beyond the currently evaluated battery business value is possible. Won Min-seok, a researcher at Hi Investment & Securities, said, "The petrochemical sector is maintaining a favorable market condition, and the battery division is also expected to see overall performance growth due to the Tesla and Apple effects."

This content was produced with the assistance of AI translation services.