[Conference Call] Lotte Chemical Returns to Profit Amid Middle East Risks... Considering Daesan and Yeosu NCC Reductions (Comprehensive)

Impact of Reduced Supply and Widened Spreads After the Middle East War
Considering Shutdowns for One NCC Unit in Daesan and Two in Yeosu
"Continued Capacity Expansion in China... Market Recovery Unlikely Before 2028"

Lotte Chemical has successfully returned to profitability in the first quarter, despite supply disruptions and surging raw material prices caused by the Middle East war. While the company expects the improvement trend to continue in the short term due to a supply-demand imbalance, it also noted that structural recovery in the petrochemical industry will take time, as the burden of capacity expansions in China persists.

On May 11, Lotte Chemical announced its preliminary results for the first quarter of this year, reporting sales of 4.9905 trillion won, operating profit of 73.5 billion won, and net profit of 33.5 billion won. The company explained that, even amid rising raw material prices and global supply chain instability following the war, it improved profitability through diversification of raw material procurement and flexible adjustment of operating rates, optimizing its production operations.

The basic chemicals division posted sales of 3.449 trillion won and an operating profit of 45.5 billion won, returning to profitability. The improvement in spreads due to higher sales prices and a positive raw material lagging effect drove the better results. The advanced materials division recorded sales of 1.0233 trillion won and operating profit of 61.5 billion won. Sales volume increased as year-end inventory adjustments ended and demand recovered in downstream industries.

Lotte Fine Chemical posted sales of 510.7 billion won and operating profit of 32.7 billion won, driven by higher international prices for key products and expanded sales. Lotte Energy Materials reported sales of 159.8 billion won and an operating loss of 5 billion won, but profitability improved thanks to a positive lagging effect from rising raw material prices.

During the earnings conference call, Lotte Chemical stated, "The basic materials division achieved a significant turnaround in profit and loss compared to the previous quarter in the first quarter, successfully returning to profitability. After the Middle East risk, the expansion of spreads for major products and a positive inventory valuation effect due to rising naphtha prices at the end of the quarter were the main drivers of improved results."

The company added, "In the second quarter, a tight supply-demand situation is expected to continue temporarily, so the short-term improvement trend should persist. However, as the sharp increase in naphtha purchase prices after the war is reflected in actual production input costs, a negative lagging effect could occur."

The company assessed that, given the significant volatility caused by the Middle East war, short-term earnings forecasts are challenging. In particular, it projected that continued new capacity additions in China would prevent the petrochemical market from turning significantly positive even through 2027–2028.

Business restructuring is also accelerating. Lotte Chemical said, "Considering the sluggish petrochemical market expected to persist for the next two to three years, we are reviewing business restructuring to enhance integrated operational efficiency," adding, "We are considering shutting down one of the two NCC units in Daesan and two of the four NCC units in Yeosu."

The Daesan plant is targeting the launch of an integrated entity and commencement of integrated operations in September, following a physical spin-off in early June. The Yeosu plant has also been undergoing a phased restructuring in collaboration with partner companies since submitting a restructuring plan in March.

Lotte Chemical emphasized that it is working to stabilize the domestic industrial supply chain despite the ongoing Middle East war. By adjusting the regular maintenance schedule at the Yeosu plant, the company ensured uninterrupted production of raw materials for medical IV fluid bags, and supplied raw materials for construction concrete admixtures at a level reaching 140% of domestic demand.

The company is also expanding its high value-added businesses. Through the nation's largest single compounding plant, scheduled for completion within the year, Lotte Chemical plans to produce 500,000 tons of engineering plastics (EP) annually. The company also intends to expand its production lineup to include high-performance product groups such as super EP in the future.

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