Lotte Chemical sells JV stakes in China, eyes other profitable markets
Hyung-Kyu Kim and Jae-Fu Kim
Oct 09, 2023 (Gmt+09:00)
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.
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.