[Corporate Insight] JC Chemical, Benefiting from New Business Farm... Green Light for Biofuel Introduction

The global edible oil market is shaking as Indonesia abruptly halts palm oil crude exports. Indonesia's palm oil supply accounts for more than half of the world's demand. If Indonesia's palm oil export suspension continues for a long time, not only food companies producing ramen, snacks, and chocolate but also cosmetics, detergent, and biodiesel companies will inevitably face difficulties. There is a high possibility of a chain reaction of price increases across essential goods, not just edible oil prices. With raw material prices soaring due to Russia's invasion of Ukraine, combined with the palm oil crisis, the pace of inflation is expected to accelerate further. Despite severe concerns over palm oil inflation, some companies are quietly benefiting. Posco International and JC Chemical, which are on the supply side, are among them. Asia Economy has explored the growth potential of these companies.

[Asia Economy Reporter Park So-yeon] Biofuels are various natural oil components converted into liquid fuels similar to petroleum through physical and chemical processes. Compared to fossil fuels, they emit significantly less fine dust, nitrogen oxides, and sulfur oxides. With the increase in mandatory biodiesel blending ratios and the expansion of bio-heavy oil introduction policies, performance growth is expected in the future. Over the past decade, the average annual biodiesel production has increased by 10%. South Korea has applied a 3.0% mandatory biodiesel blending ratio since 2018 and raised it to 3.5% in July last year. Aligning with the global average blending ratio of 10%, South Korea plans to increase the mandatory blending ratio to 8% by 2030. This is expected to naturally lead to structural growth.

Currently, JC Chemical's main revenue segments are biodiesel and bio-heavy oil sales. The supply of biofuels for marine and aviation fuel markets is expected to increase overwhelmingly in the future. Biofuels, which were limited to vehicles and power generation, are now expanding to ships and aircraft. The adoption speed of biofuels by companies and governments worldwide is accelerating, and especially with the South Korean government's carbon neutrality detailed plans, the introduction of bio-heavy oil into marine and aviation fuels is expected to become a foundation for long-term growth. According to the government's '2050 Carbon Neutral Scenario,' 30% of total shipping energy consumption will be expanded to biofuels and LNG fuels. Additionally, 30% of total aviation fuel consumption will be expanded to bio aviation fuel. Currently, the Bioenergy Association is conducting tests on biofuels for ships. The market expects that assuming the introduction of bio marine fuel, JC Chemical's bio marine fuel sales will reach 50 billion KRW by 2030.

JC Chemical acquired a palm plantation in Indonesia in 2012 and operates the sale of crude palm oil (CPO) produced from palm fruits as a new business. Benefiting from renewable energy expansion policies, CPO prices have been steadily rising. Palm oil is the most consumed vegetable oil worldwide. It is used in edible oils, processed foods, cosmetics, and biodiesel fuels. As demand outpaces supply, Indonesia, the world's largest palm oil producer, declared an export suspension, and concerns over the war between Russia and Ukraine, which have high vegetable oil export volumes, are accelerating. This supply-demand uncertainty is rapidly pushing prices up. Stock prices are also strong, interpreted as an effect of rising refining margin expectations due to palm oil price increases.

Stock Prices Strong Amid Palm Oil Price Surge
Expectations for Biofuel Expansion to Ships and Aircraft
Continuous Growth Expected Linked to Carbon Neutral Policies

Choi Jae-ho, a researcher at Hana Financial Investment, explained, "Ukraine is the world's largest sunflower oil producer, and Russia ranks second," adding, "Due to the shortage of sunflower oil supply caused by Russia's invasion of Ukraine, demand for the substitute CPO surged." He continued, "While CPO consumption increased, production decreased due to adverse weather and labor shortages in Indonesia on the supply side."

JC Chemical is a company expected to sustain growth in line with carbon neutrality policies. There are concerns about intensified mid- to long-term competition as refiners enter the biodiesel business. However, JC Chemical maintains stable orders through friendly trust relationships with major clients for over ten years. Over the past three years, consolidated financial statements show sales between 200 billion and 400 billion KRW, with operating profits ranging from 13 billion to 40 billion KRW. CAPEX investment was 6.8 billion KRW as of 2021, and interest-bearing debt was 163.7 billion KRW. The debt ratio stands at 149.59%. Park Min-joo, a researcher at Hanyang Securities, said, "It is clear that carbon neutrality policies and regulations will be strengthened globally in the future," adding, "JC Chemical currently maintains a production facility utilization rate of over 90% and has sufficient capital to expand facilities."