"Petrochemical Operating Loss Hit 1.5 Trillion Won Last Year...Restructuring Results Will Take Time"

NICE Investors Service Report

Although restructuring of the petrochemical industry has begun, there are projections that it will take a considerable amount of time before any tangible results emerge.

On the 16th, NICE Investors Service stated in a recently published report that the combined operating loss of major petrochemical companies for last year is tentatively estimated to be about 1.5 trillion won. This means the loss has widened compared with the previous year's operating loss of 1.1 trillion won. Regarding this, NICE Investors Service assessed that "in last year's case, a sharp decline in spreads for major products in the fourth quarter and one-off costs such as inventory losses led to a large-scale deficit, significantly expanding the loss on an annual basis."

These operating losses occurred both in the upstream segment, which produces basic feedstock, and in the downstream segment, which produces synthetic resins. NICE Investors Service noted that there is a possibility that prices of some products may rise due to China's recent "anti-involution" policy aimed at curbing excessive competition, but it also forecast that the likelihood of improvement in supply-demand conditions will be limited. NICE Investors Service projected, "Despite the possibility of restructuring some facilities, the overall supply burden is unlikely to ease significantly in the short term."

In addition, regarding the recent restructuring of the petrochemical industry, it commented that "it is more meaningful in terms of enhancing the business continuity of the industry as a whole than in terms of short-term profitability improvement." However, it also judged that "although restructuring plans are being submitted sequentially for each major plant, there are differences in pace during the consultation process among stakeholders," and that "it will take a considerable amount of time until substantive restructuring is actually implemented."

In detail, for the Daesan complex, the establishment of a joint venture between Lotte Chemical and HD Hyundai Chemical is planned for the second half of this year, but for the Ulsan and Yeosu complexes, it appears that the relevant companies are still at an early stage, merely reviewing the feasibility of facility integration and production restructuring.

It went on to say, "Given the uncertainty over when the business cycle will recover and the time required to implement restructuring, in the short term the capacity of individual companies to respond financially will function as one of the key factors in defending their credit ratings," adding, "Major petrochemical companies are expected to maintain a policy focus on financial stability and liquidity management through asset sales in 2026 as well."