Lotte Chemical Halts General Purpose Petrochemical Manufacturing in China

Lotte Chemical has divested itself of all its facilities involved in the production of general-purpose petrochemicals in China. This strategic move comes as the profitability of general-purpose petrochemicals has significantly dwindled, largely due to the aggressive expansion efforts undertaken by Chinese firms in the industry.

Lotte Chemical Jiaxing had been primarily engaged in the production of ethylene oxide adduct (EOA) and ethanolamine (ETA), both of which serve as essential raw materials in the manufacturing of cement and detergents. However, these operations had been operating at a loss for a number of years, largely due to a downturn in China's construction sector and the intensified competition brought about by the expansion of local companies. This resulted in the prices of these essential chemicals falling below the break-even point for Lotte Chemical.

In response to these challenges, Lotte Chemical took a strategic decision to cease all its operations linked to the production of basic petrochemicals in China. Instead, the company has chosen to redirect its focus toward the manufacturing of higher-value, more profitable products. Lotte Chemical now plans to prioritize the production of high-growth battery materials, including acrylonitrile butadiene styrene (ABS), copper foil, and separators.

The company has set ambitious targets to increase the proportion of sales derived from high-value-added products, with a goal of reaching 60 percent by 2032, up from the 47 percent achieved in 2022. In the previous year, the ratio of sales between high-value-added products and general-purpose products stood at 47 to 53.

In 2021, Lotte Chemical's high-value-added products were distributed to various regions, including the US (19%), Europe (14%), and East, West, and South Asia (15%). This year, the company aims to expand its sales distribution to the US (20%), Europe (20%), and the Asia-Pacific region (18%), totaling 58% of its sales in these key markets. Lotte Chemical's core product range encompasses acrylonitrile butadiene styrene (ABS), polycarbonate (PC), and compounds used in information technology (IT) devices, automobiles, home appliances, and smartphones.

With regards to its remaining general-purpose products, the company is poised to concentrate on the rapidly growing Southeast Asian market. Lotte Chemical has committed to a substantial investment of US$3.9 billion in Indonesia, with the goal of completing a mega petrochemical complex by 2025. Recent reports indicate that this project has already achieved progress exceeding 70%.

On the flip side, Lotte Chemical has charted a course to reduce its share of sales in the basic petrochemical business within the Chinese market. This share is expected to decline from 23% in 2020 to 17% this year, with a further reduction to 15% projected for 2025. The sale of Lotte Chemical Jiaxing plant in September follows the earlier sale of Lotte Samkang Chemical in June, signifying a strategic shift in the company's focus and operations.