[Alpha Biz= Paul Lee] Amid an ongoing supply glut driven by China's low-cost production and increasing fears of US tariffs, financial instability is spreading across domestic petrochemical companies.
According to the financial investment industry on the 28th, NICE Credit Rating recently reported that Lotte Group’s petrochemical sector is facing prolonged poor performance, leading to increased financial strain. Despite aggressive self-rescue efforts, the company is unlikely to return to the strong performance levels seen in previous years. Moon Ah-young, a senior analyst at NICE, pointed out that "due to the rise in China’s petrochemical self-sufficiency, weakening export bases, and inferior raw material competitiveness, even if supply and demand conditions improve, profitability may remain far below the levels seen during past booms."
Lotte Chemical (011170), which has received a negative outlook from all three major domestic credit rating agencies and is due for its regular credit review in June, is particularly impacted.
LG Group is also grappling with the long-term downturn in its petrochemical sector. Lee Kyu-hee, a senior analyst at NICE, noted that the petrochemical sector, which had contributed significantly to the group’s profit base by generating more than 2 trillion KRW in operating profit in 2018, has been showing signs of operating losses since 2023, reflecting a poor performance trajectory.
According to Hana Securities, as of the 14th, six domestic petrochemical companies, including LG Chem (051910), Lotte Chemical, Hanwha Solutions (009830), HD Hyundai Chemical, SK Advanced, and Hyosung Chemical (298000), have been assigned a ‘negative’ outlook by NICE Credit Rating, among those with credit ratings of BBB- or higher. A ‘negative’ outlook indicates a higher risk of a downgrade in the company’s credit rating compared to others, unless improvements in business performance or cash flow are seen.
Korea Credit Rating has also given negative outlooks for Lotte Chemical, SK Advanced, Yeocheon NCC, and Hyosung Chemical, reflecting a pessimistic view of the future of these domestic petrochemical companies.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
