[Heavy Industry ON] Petrochemical Industry in Crisis: Contrasting Fortunes for Lotte Chemical and Hanwha Solutions

Different Levels of Resilience Amid Middle East-Driven Crisis
Lotte Chemical Loses Ground to Chinese Generic Products
Hanwha Solutions Expands into Solar and Cable Industries

Even before the recent deterioration in external conditions stemming from the Middle East, the domestic petrochemical industry was already on a downward trajectory. The sector had lost its market competitiveness, having been outperformed by generic Chinese products. With turmoil intensifying across the industry, individual companies are showing different levels of resilience. Lotte Chemical, which has a high proportion of basic chemical products, is facing a deepening slump, while Hanwha Solutions, which has pursued business diversification through portfolio expansion, appears to be faring comparatively well.

Once regarded as a stable and low-volatility industry, and called the group's "cash cow," the petrochemical sector began facing a crisis around the 2020s when China, previously its largest source of profit, achieved 100% self-sufficiency. This shut off export opportunities, leading to oversupply and a situation where selling more actually increased losses—a negative margin scenario. Ultimately, the petrochemical industry entered into restructuring, and last month, HD Hyundai Chemical and Lotte Chemical announced the "Daesan Project No.1," which involves consolidating their petrochemical facilities in Daesan, South Chungcheong Province.

Hanwha Solutions Yeosu Plant. Hanwha Solutions

Industry insiders believe that Lotte Chemical, which has focused primarily on generic petrochemical products, has taken the brunt of the impact. During the COVID-19 pandemic, Lotte Chemical made significant profits as demand for packaging, medical, and quarantine supplies surged. However, rather than developing high value-added products, it maintained a high proportion (over 60%) of basic chemical products and prioritized mergers and acquisitions (M&A). Meanwhile, Chinese companies succeeded in developing technologies to produce generic products themselves, and Lotte Chemical lost ground in the competition.

Moreover, aggressive mergers and acquisitions hindered growth. In 2022, Lotte Chemical acquired Iljin Materials, a manufacturer of copper foil for electric vehicles, for 2.7 trillion won. However, due to a downturn in the electric vehicle sector, the company failed to deliver strong results, and its downward trend continued. An industry official commented, "There were many remarks that Lotte Chemical overpaid for its acquisitions," adding, "Poor investment decisions have amplified the current crisis."

In contrast, although Hanwha Solutions is a petrochemical company, it expanded its portfolio from petrochemical products to renewable energy by acquiring Qcells, then the world's top solar company, in 2012. While the company struggled for some time, instability in international oil prices due to Middle Eastern issues has renewed demand for renewable energy, leading to a simultaneous rise in interest in solar power.

Hanwha Solutions has not only invested in the development of generic products but has also identified eco-friendly cables, such as electric wires, as a future growth industry and continued to invest in this area. The company has entered the cable industry, which is classified as a high value-added sector. Last year, Hanwha Solutions established a new "Wire & Cable (W&C)" business division and set up a new subsidiary in Milan, Italy, to launch a full-scale expansion of its sales. Despite unstable crude oil supply and ongoing restructuring, these efforts have provided Hanwha Solutions with some breathing room.

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