South Korea’s leading petrochemical player LG Chem Ltd. is expected to report strong earnings in the third quarter thanks to increasing demand for its petrochemical products following hurricane Harvey that hit the United States and China’s stricter environmental regulations.

Outlook for its battery business is also getting rosier after major global car makers have revealed bold investment plans on electric vehicle production.

According to the chemical industry and market data provider FnGuide on Sunday, LG Chem’s operating profit for the third quarter ended September this year is estimated at 708.4 billion won ($626 million), up 10.7 percent from the previous forecast of 640 billion won and 54 percent from a year ago.

The biggest driver behind such a big jump in LG Chem’s profits is an expected shortage of ethylene, its mainstay product, after hurricane Harvey battered Texas in which U.S. major refinery and chemical complexes are located and about 55 percent of U.S. ethylene supply is produced.

The latest natural disaster has pushed up the price of ethylene 14.4 percent from $1,149 per ton in August last year to $1,315 per ton on average as of September 15 this year, benefitting LG Chem, Korea’s second largest ethylene supplier with a capacity of 2.20 tons per year after Lotte Chemical with a capacity of 3.23 tons.

An official from a local chemical company expected “the rising ethylene prices on top of a prolonged slump in oil prices” would help Korean chemical companies extend profits for a while.

Tighter government’s environmental regulation in China also bodes well for the Korean petrochemical company, market analysts said. The Chinese government recently announced it would move the country’s chemical factories from urban areas to less crowded suburban towns by 2025 after the fire at PetroChina oil refinery last month has spurred concerns over a health hazard of chemical production to a large inner-city population. The Chinese government also plans to restrict the operation of chemical factories until the end of this year to achieve its air quality improvement goal this year.

As all these measures will likely leave Chinese petrochemical factories to remain idle for a while, demand for LG Chem’s products should further grow, market analysts forecast.

Expectation for its battery business is also growing. After the battery business swung back to profits in the second quarter for the first time in six quarters, market analysts are anticipating the business should continue to post profits.

In particular, German carmakers including Volkswagen, Mercedes-Benz and BMW revealed their bold investment plans for electric vehicles at the 2017 Frankfurt Motor Show last week, drawing attention to LG Chem, which is the largest electric vehicle battery manufacturer in Korea. The company has been already supplying its batteries to other major global car makers including General Motors.

“LG Chem’s stocks are expected to continue to extend gain for a while thanks to the upbeat electric car business and its business portfolio focused on the higher value-added business,” said Jeon Yu-jin, an analyst at IBK Securities Co.

Shares of LG Chem Monday closed 1.5 percent down at 395,000 won from the previous session.

By Moon Il-ho

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]