South Korean petrochemical companies' profits plummet in 2024 as oversupply persists

South Korean petrochemical companies LG Chem and Lotte Chemical both posted losses in 2024, and executives at both companies said this week that the losses were mainly dragged down by oversupply, which will continue this year, while trade turmoil dampens the global economic outlook.

Petrochemical producers in Europe and Asia have been consolidating as years of capacity increases in China, the largest market, and high energy costs in Europe squeeze profit margins.

Lotte Chemical reported earnings on Friday, with its 2024 operating loss increasing by about 157% year-on-year to 895 billion won ($619.62 million). It was the company's biggest loss in terms of operating income since 2011, according to company data. Financial data before 2011 is not publicly available.

The company's basic materials division, which includes petrochemicals, saw its operating loss in the fourth quarter narrow by about 52% from the previous quarter to 175 billion won.

LG Chem reported on Monday that its operating profit in 2024 fell 63.75% from the previous year to 916.8 billion won, the lowest level since 2019. Its petrochemical division suffered an operating loss of 99 billion won in the fourth quarter.

Both companies believe that global oversupply is a key problem in the petrochemical industry. "The continued sluggish market is due to oversupply caused by continued capacity expansion in Northeast Asia and weak economic recovery in China," Yang Cheol Ho, head of strategy for LG Chem's petrochemical division, said in a conference call on Monday.

With new plants still coming on line in the Middle East and China, oversupply is expected to continue for several years.

"We do expect overcapacity and uncertainty in global demand to persist, especially under the policies of Trump 2.0," a Lotte Chemical executive said on Friday. Trump's 10% tariff on all Chinese imports will trigger a retaliatory move by China.

While both companies noted the slow recovery in Chinese demand, they were generally optimistic about the recovery in demand in the industry's largest consumer.