Last year, eight major South Korean petrochemical companies reported a combined operating loss of 1.5 trillion won, significantly higher than expected due to poor market conditions and one-time costs.
In 2022, the eight major petrochemical companies in South Korea, including LG Chem, Lotte Chemical, and Hanwha Solutions, reported a staggering combined operating loss of 1.5 trillion won. This figure far exceeded the expectations for losses in 2024, estimated at 1.1 trillion won. The losses were attributed to a declining market environment and the recognition of one-time costs that significantly deteriorated their financial performance. According to NICE Investors Service, the companies experienced particularly severe losses in the fourth quarter, where product spreads decreased sharply due to falling prices of major products, leading to substantial inventory losses and a critical setback in profits.
As these companies reassess their future performance projections amid ongoing poor market conditions, they have incurred substantial asset impairment charges. This reflects a long-term decline in profitability for most firms involved, where they have recognized impairments related to goodwill and tangible assets. Specifically, during the last quarter of 2022, LG Chem and Lotte Chemical recognized impairment losses of approximately 1.9 and 1 trillion won respectively, indicating the strain and challenges faced in the sector.
Despite the government initiating structural reforms in the South Korean petrochemical industry at the end of last year, the timeline for seeing tangible results remains uncertain. If the final equipment reduction meets government targets (between 2.7 to 3.7 million tons), it indicates a shift in the domestic consumption patterns. These operational adjustments could subsequently reduce the reliance on exports to specific markets, including China, but will require time to achieve meaningful outcomes.
