Loss-making Lotte Chemical to sell water treatment unit to Synopex

Lotte Chemical Corp., South Korea’s second-largest petrochemical company grappling with mounting losses amid a prolonged industry downturn, will sell its water treatment business to a subsidiary of Synopex Inc. to focus on core businesses. 

The company announced on Friday that it had signed a deal with Synopex Membrane to sell its water treatment plant in Daegue, about 300 kilometers south of Seoul.

The facility, spanning 5,775 square meters, annually produces 550,000 square meters of water treatment membranes, used in water purification and wastewater treatment systems to ensure sanitary and safe water. The plant began commercial operations in 2019.

The two companies agreed not to disclose the financial terms of the deal, slated for closure by July, Lotte Chemical said.

Synopex Membrane is a subsidiary of Kosdaq-listed Synopex, a local company that specializes in membrane and electronic materials.

NO SIGN OF OVERSUPPLY EASING

Lotte Chemical said the divestment is part of its broader effort to streamline its portfolio and focus on core businesses amid a prolonged slump in the petrochemical industry.

“The sale of our water treatment business is a strategic decision to relocate resources toward high-end, specialty chemicals and future growth-driving businesses,” the company said in a statement.

“We will continue to optimize our business portfolio and implement management reforms aimed at restoring profitability and strengthening our competitive edge.”

Like its peers, Lotte Chemical has been struggling with mounting losses caused by China’s aggressive expansion in basic chemical production over the past decade.

China’s annual ethylene production capacity surged from 1,950 tons in 2014 to 5,274 tons in 2024, more than doubling Korea’s 1,270-ton production.

The overcapacity slashed ethylene prices by over $500 per ton over the past year.

INDUSTRY-WIDE RESTRUCTURING

The supply glut has dealt a heavy blow to domestic producers, including Lotte Chemical.

Lotte Chemical, which posted 1.54 trillion won ($1.1 billion) in operating profit in 2021, swung to a loss of 762.6 billion won in 2022. The loss ballooned to 894.1 billion won in 2024.

To stay afloat, Korea’s second-largest petrochemical company has divested several assets since last year, raising 1.7 trillion won to date.  

Early this year, it sold off its entire 75.01% stake in Lotte Chemical Pakistan Ltd. for 97.9 billion won and a 25% stake in PT Lotte Chemical Indonesia for 650 billion won.  

It also unloaded a 4.9% stake in Resonac, a Japanese materials company, for 275 billion won.

In 2024, Lotte Chemical used its 40% stake in Lotte Chemical Louisiana LLC as collateral to raise 660 billion won and liquidated Lotte UBE Synthetic Rubber Sdn. Bhd.

With China-driven overcapacity continuing to batter the sector, the Korea Chemical Industry Association (KCIA), which counts most major domestic petrochemical players as members, commissioned Boston Consulting Group to study the industry's structural challenges.

A report submitted to the Ministry of Trade, Industry and Energy in late March is said to recommend a drastic cut, up to 50%, in generic production capacity, particularly in Daesan and Yeosu, where the country’s overlapping facilities are most concentrated.

Late last year, the Korean government also announced a plan to ease regulations and offer incentives to facilitate restructuring across the domestic petrochemical sector.

Earlier this month, Lotte Chemical reportedly began talks with HD Hyundai Co. to consolidate their naphtha cracking operations in the Daesan petrochemical complex in Korea, marking the country’s first major self-initiated restructuring move to combat pressure from Chinese oversupply.

Write to Jin-Won Kim at jin1@hankyung.com
Sookyung Seo edited this article.