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Chemical firms absorb units to boost profitability, efficiency

All News 13:00 September 15, 2019

By Joo Kyung-don

SEOUL, Sept. 15 (Yonhap) -- South Korea's major chemical companies are bulking up by absorbing their advanced material-producing affiliates in a move to increase their profitability amid the global economic slowdown, market watchers said Sunday.

In recent months, three chemical firms have announced they will absorb their wholly owned subsidiaries to streamline their chemical businesses.

Last week, SK Chemicals Co. said it will absorb Initz Co., a subsidiary that produces polyphenylene sulphide, an engineering plastic used for making automobile parts.

This undated photo provided by Lotte Chemical Corp. shows the company's plant in Lousiana, United States. (PHOTO NOT FOR SALE) (Yonhap)

Lotte Chemical Corp., South Korea's No. 2 chemical firm, last month announced its merger with Lotte Advanced Materials Co. that focuses on specialty chemicals business. The merger, which will be completed by Jan. 2, 2020, will boost its annual polycarbonate production capacity to 460,000 tons, the third-largest output in the world.

In July, Hanwha Chemical Corp., the nation's No. 3 player, said it will absorb Hanwha Q Cells & Advanced Materials Corp., a subsidiary that produces solar power modules and automotive lightweight materials.

Analysts said the merger will allow the companies to reduce costs by improving efficiency in management.

"Companies can reduce costs in material procurement," said Baek Young-chan, an analysts at KB Securities Co. "They can also create synergy by sharing research and development data on chemical products."

This file photo taken April 17, 2019, shows Hanwha Chemical Corp.'s plant in Yeosu, South Jeolla Province. (Yonhap)

Industry insiders said the move is also meant to secure stable profitability by diversifying its business portfolio and selling more high-value products.

Lotte Chemical saw its sales decline 8.2 percent on-year to 7.7 trillion won (US$6.4 billion) in the first half, while operating profit plunged 53 percent on-year to 641.8 billion won.

Hanwha Chemical posted 4.6 trillion won in sales in the first half, up 6.5 percent from a year ago, but its operating profit dived 45 percent on-year to 195.8 billion won in the cited period.

"The petrochemicals market is largely affected by external factors like the global economy, but the advanced materials business can generate profits on a stable basis," an official with Hanwha Chemical said. "It will allow the company to expand its business to industries that require advanced materials, such as aerospace and future mobility."

These companies could make additional moves to streamline their chemical and material businesses, they said.

"Following Lotte Chemical's merger with Lotte Advanced Materials, speculation is rising that it will also absorb Lotte Fine Chemical Co.," said Han Sang-won, an analysts at Daishin Securities Co.

"It's very likely that the company will pursue a merger with Lotte Fine Chemical, but it's too early to judge whether the deal will end successfully because some shareholders could oppose the plan."

kdon@yna.co.kr
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