South Korea’s major petrochemical firms will likely generate smaller earnings after a bumper year in 2016 amid softening demand and growing risk of a supply glut.
According to data compiled by market tracker FnGuide and analyzed by the Maeil Business Newspaper on Tuesday, market analysts have revised down combined operating profit outlook for the country’s major petrochemical companies for this year by 436.6 billion won ($387.6 million) from three months earlier.
Lotte Chemical Corp. that became the country’s No. 1 petrochemical firm after posting an all-time high operating profit of 2.5 trillion won last year is expected to record 2.94 trillion won this year, based on market consensus on June 12. The firm’s earnings for this year were estimated at 3.14 trillion won on March 12 and 2.99 trillion won on May 12.
The earnings outlook for S-Oil Corp. during the same period was lowered from 1.70 trillion to 1.58 trillion then again to 1.55 trillion won while that of Hanwha Chemical Corp. fell to 751.9 billion won from 762.9 trillion won and 777.1 billion won. The earnings projection for Kolon Industries Inc. has revised down to 251.8 billion won on June 12 from 312.3 billion won projection made three months earlier.
Market experts also lowered the 2017 earnings forecast for GS Holdings, the major shareholder of GS Caltex Corp. to 2.05 trillion won from 2.07 trillion won a month ago, and that of SK Innovation Co. to 3.47 trillion won from 3.52 trillion won over the same period.
Market’s expectations for local petrochemical companies have sharply fallen due to concerns that the global petrochemical industry will likely be hit by an oversupply in the second half of this year. Petrochemical firms that have temporarily scaled down their production due to regular maintenance works will be ready to re-run their lines from this month. U.S. and Chinese firms also have started ramping up their capacity.
Additional 2.86 million tons of polyethylene was supplied in the market last year, but this year’s production ramping up is expected to up overall supply by 7.10 million tons, said Baek Young-chan, analyst at KB Securities Co, adding that price of Lotte Chemical’s key product polyethylene is expected to fall from the second half due to the oversupply.
Moreover, global demand for petrochemical products has started to weaken since the beginning of this year partly because petrochemical product customers have rushed to stockpile the products between the second half of last year and March this year due to concerns over a further hike in the price of petrochemical products.
By Yoon Jin-ho and Lee Yong-gun
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]