Lotte Chemical has risen to the No. 1 position in the Korean petrochemical business industry after overtaking LG Chem in operating profit for the first time since its founding in 1976.
The company’s strategy to go all out in the petrochemical industry has paid off while the petrochemical industry enjoys a resurgence. But as the petrochemical industry tends to alternate in boom-and-bust cycles, Lotte Chemical needs to diversify its business portfolios.
Lotte Chemical announced on Feb. 2 that the company chalked up 13.2235 trillion won and 2.5478 trillion won in sales and operating profit, respectively, for the whole of 2016. The figures represent a 12.8 percent surge and a 58.1 percent jump over the previous year, respectively.
The company saw operating profit soar thanks to a steady demand for petrochemical products amid declining petrochemical raw materials prices.
Lotte Chemical logged the best-ever operating profit, and the company overtook LG Chem for the first time in terms of operating profit on an annual basis. Last year, LG posted 20.6593 trillion won and 1.9919 trillion won, respectively. Lotte Chemical’s 2016 sales accounted for 64 percent, but the former earned 550 billion won more in operating profit than the latter.
LG Chemical’s better performance was owed to the company’s strategy to put its back on the petrochemical business.
Lotte Chemical has continuously expanded facility investments into petrochemical products for general use. In 2010, the company acquired Titan, a Malaysian ethylene producer for 1.5 trillion won.
At that time, many experts had negative views on the company’s M&A, citing a delayed recovery of the Chinese economy and a glut in petrochemical products for general use. The global petrochemical business situation has improved since 2015, proving Lotte Chemical’s strategy to be a good one.
The company has focused on expanding petrochemical facilities, including ethylene plants in Korea and abroad. Of late, the company is building a plant in the United States that will produce petrochemicals using ethane gas as part of its efforts to diversify petrochemical raw materials.
On the other hand, LG Chem has been pursuing a strategy to diversify its business portfolios, departing from a focus on petrochemicals. The company has been entering business areas ranging from EV batteries, LCD film and other information technology and electronics materials to the bio sector.
The company’s focus on the conational petrochemical business is shifting into value-added products instead of a decline in petrochemicals in general use.
LG Chem and Lotte Chemical have different management strategies. LG Chemical saw the operating profit amount to a whopping 1.4 trillion won in 2011, but plunge to between 350 billion won to 480 billion won during the period between 2012 and 2014. Lotte Chemical was on a roll last year, riding the booming petrochemical industry.
LG Chemical saw operating profit reach a record of 2.8187 trillion won in 2011, chalking up between 1.3 trillion won and 1.9 trillion won per year thereafter. But the reality is that LG Chem has not yet reaped the rewards from investments into such future growth engines as EV batteries.