LG Chem announced a plan to invest 400 billion won, which will go towards raising the capacity of an elastomer plant to 200,000 tons.
The latest massive investment follows LG Chem¡¯s acquisition of Farm Hannong, an agricultural seeds and fertilizer company, which came with a price tag of 420 billion won in April. LG Chem has poured a combined 6.5 trillion won in facility investments in Korea and abroad since 2013.
With the completion of the elastomer plant expansion, LG Chem will rank 3rd in the world in terms of elastomer production, following Dow Chemical Company and Exxon Mobil Corp.
¡°We strive to focus on premium products with added values to shake off China and other late-comers¡¯ chase, and to continue making profits,¡± an LG Chem official said.
Elastomer, a material that can be fabricated with ease and is as elastic as rubber, is a high-added value product. It is in wide use in such products as automotive materials, electric cable covering materials and sneaker soles for absorbing shocks. In particular, an increasing number of automakers are rushing to improve mileage of vehicles that use elastomers in the production of bumpers. The petrochemical market survey company CMR forecast that the global elastomer market will grow more than 40 percent in the next five years.
Currently, four companies, including LG Chem, have proprietary technologies to produce elastomers. LG Chem owns about 400 patents related to core elastomer technologies. LG Chem has a vertically integrated system in place, ranging from raw materials to fished products. Thanks to high entry barriers, LG Chem is expected to gain high returns. If and when the expansion project is completed, LG Chem will likely see the elastomer business post 600 billion won annually.
LG Chem plans to raise the capacity of an elastomer plant in Daesan, Chungcheongnam-do. (Photos: LG Chem)
LG Chem is hitting the accelerator to make investments in succession to explore new growth engines. In 2014, LG Chem took over NanoH2O for 220 billion won to venture into the desalination business. NanoH2O is a U.S.-based RO membrane manufacturer known for its innovative thin-film nanocomposite membrane technology that dramatically improves membrane efficiency and productivity. This unique technology, combined with LG Chem¡¯s experience in roll-to-roll coating, excellence in chemical and polymer manufacturing, and world-class research & development will propel the growth of its NanoH2O line of reverse osmosis membranes. In 2015, LG Chem built an EV battery plant in Nanjing, China. In April, the company acquired Farm Hannong to enter the bio business. LG Chem is considering the construction of an EV battery plant in Poland at a cost of 300 billion to 400 billion won.
LG Chem submitted a bid to acquire Continental Structural Platics, a U.S. automotive parts leader in composite materials formulation, design and manufacturing technologies, in cooperation with LG Hausys. LG Chem saw its capital expenditure (CAPEX) rise from 1.38 trillion won in 2013 to 1.78 trillion won on a constant basis. The figure represent up to a five-fold of its rivals¡¯ annual investments ranging from 300 billion won to 800 billion won.
LG Chem¡¯s massive investments into new businesses is attributable to its analysis that the petrochemical industry¡¯s conventional economic cycle of demand and supply shortages alternating every five to 10 years. General petrochemical products, including ethylene, experience constant supply gluts, caused by China¡¯s massive production expansion.
¡°Days come in which the conventional management system of investing according to cycles no longer work for future survival,¡± said Ok-dong, head of LG Chem Basic Materials Business Division. He added that portfolios will be diversified to make profits even at a critical juncture.