Lotte Chemical, Korea’s second-largest petrochemical company, announced on the 25th that it has decided to liquidate Lotte Ube Synthetic Rubber (LUSR), a Malaysian synthetic rubber production corporation. This is a decision to boldly cut out businesses that are difficult to survive in competition with China. Portfolio restructuring to strengthen the specialty (high value-added products) business is in full swing, including a decision to reduce the number of overseas production subsidiaries from 18 to 14 by 2022.
The Malaysian production corporation decided to be liquidated this time is a joint venture in which Lotte Chemical and Japan’s Ube Elastoma invested half. Commercial production (50,000 tons per year) began in 2015. However, except for 2021, it was included in the liquidation list as it suffered a deficit through the first half of this year. An official in the petrochemical industry said, “It was a bold decision to quickly liquidate the company in a situation where we had no choice but to leave behind only the cost of scrap metal,” and added, “It shows our will to liquidate businesses with clear growth limits.”
Lotte Chemical has recently been reorganizing its overseas production subsidiaries one after another. The number of overseas production corporations decreased from 18 in 2022 to 16 this year. If we include LUSR, which announced its liquidation plan today, and the Pakistani corporation in the process of sale, the number decreases to 14. Last year, it sold all of its shares in Lotte Samkang Chemical and Lotte Chemical Jasing, which were joint ventures with Chinese companies.
It is in the same context that the company decided on the 24th to raise funds of 1.4 trillion won by selling shares in Lotte Chemical Louisiana (LCLA) and Lotte Chemical Indonesia (LCI). Lotte Chemical plans to repay loans to lower its interest burden and promote new businesses.
Lotte Chemical is evaluated as having a high proportion of basic chemicals among domestic petrochemical companies. It accounts for 60% of total sales on a consolidated basis last year. This is why it is more vulnerable to China’s petrochemical volume offensive. The company is expected to incur losses for three consecutive years from 2022 to this year.
Lotte Chemical has been stepping on the accelerator pedal for ‘asset lightening’ since CEO Lee Hoon-ki took office last April. The reason CEO Lee toured domestic and overseas business sites throughout the first half of the year was to classify non-core businesses. He is known to have emphasized at an executive meeting, “We must boldly dispose of assets of low strategic importance and increase operational efficiency.”
The market expects Lotte Chemical to further liquidate inefficient assets in the future. Instead, the company is expanding its investment scale in businesses where there is a gap with Chinese companies, such as investing more than 300 billion won in Lotte Engineering Plastics. Specialty products selected by Lotte include high value-added synthetic resin (ABS), polycarbonate (PC), and compounding, which are widely used in smartphones, laptops, automobiles, and medical devices.
Reporter Kim Hyeong-gyu/Oh Hyun-woo khk@hankyung.com
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