Petrochemical industry successfully defended its performance in the first quarter against the lagging effect, but concerns are rising about deteriorating profitability in the second half of the year. The sharp increase in costs due to geopolitical risks in the Middle East is expected to lead to increased volatility in performance as the cost increase is reflected with a time lag.
According to industry sources on the 29th, major petrochemical companies are expected to show improved performance or reduce losses in the first quarter compared to the previous quarter. Normally, it takes about two months for imported naphtha to be brought into the country. The profitability has improved as the cost increase has not yet been fully reflected due to the time difference between raw material procurement and product sales.
LG Chem is set to announce its first-quarter performance on the 30th. Analysts expect LG Chem to record a loss in the range of 140 billion won in the first quarter, but anticipate a profit of about 60 billion won in the petrochemical sector.
Hanwha Solutions recorded an operating profit of 34.1 billion won in the chemical sector in the first quarter, successfully turning a profit after 2 and a half years since the third quarter of 2023.
Lotte Chemical, which is scheduled to announce its performance next month, is expected to record a loss of about 200 billion won. Although it may not break the cycle of losses, it is expected to significantly reduce the size of losses compared to the fourth quarter of last year (operating loss of 433.9 billion won).
Industry insiders predict that the petrochemical industry will face significant impacts from the surge in raw material prices such as naphtha following the outbreak of the US-Iran war, starting from the middle of the second quarter. Consequently, it is expected that the profitability will deteriorate as we move into the second half of the year.
According to Opinet, as of the 28th, the price of naphtha is $117.94 per barrel. This is 71.2% higher than February 27th (68.87 dollars), just before the outbreak of the US-Iran war.
The government and the industry are striving to diversify the supply chain to secure naphtha supply, but there are forecasts that cost burdens will increase in the short term due to the prolonged geopolitical risks in the Middle East.
An industry official stated, "The positive trend of profits in the first quarter is evident due to the lagging effect," and added, "However, we are likely to face the full impact of increased cost burdens starting from the middle of the second quarter. The trend of deteriorating profitability will become clear."