Quick recovery forecast for South Korea

By Malini Hariharan

Analysts are predicting a quick recovery for South Korean petrochemical companies after a dismal performance in the last quarter.

Honam Petrochemical’s Q4 2011 sales were down 14.7% quarter on quarter at Won3,488 bn. Operating profit declined 59.8% to Won158.4bn.

LG Chem’s sales dipped 4.8% at Won5,602bn while operating profit slipped 30% to Won506bn.

Among the other South Korean companies, S-Oil saw sales decline 18.7% in Q4 2011 to Won9,264bn while operating profit was 11.6% at Won411.8bn. SK Innovation saw sales decline 1.6% while operating profit was down 60.2% at Won 343.1bn

But analysts at Woori are predicting a sharp correction in earnings in profits in Q1 2012. Honam is expect to post a 78% quarter on quarter growth in operating profit to Won282.2bn thanks to strong butadiene prices.

Butadiene prices have crossed $3,500/tonne cfr Asia in response to maintenance shutdowns at Asian crackers.

LG Chem’s 2012 sales and operating profit are projected to rise as the company is due to add volumes from new plants for acrylic acid (190,000 tonnes/year), superabsorbent polymer (72,000 tonnes/year) and bisphenol A (150,000 tonnes/year).

And they are also confident of a continued recovery in fortunes as petrochemical prices are likely to steadily improve through 2014 on tight supply conditions.

“We anticipate Honam enjoying long-term growth potential from both domestic cracker capacity expansion and its planned overseas business ventures in Indonesia and Uzbekistan,” they said.

Honam has a stake in a joint-venture cracker project in Uzbekistan that is due to be completed in 2013.

S-Oil’s operating profit is projected to climb 18.0% to Won485.8bn in Q1 2012 on strong oil prices and refining margins.

“With the Dubai crude oil price remaining strong in response to Middle
Eastern geopolitical risks, high oil prices have spurred petroleum product demand–the Asian complex margin now stands at around $12/bbl versus $8.2/bbl in Q4 2011,” they said.

The strength in refining margins should also benefit SK Innovation. The company’s operating profit is expected to rise 113% quarter on quarter to Won730.6bn.

Current market conditions support the positive view taken by analysts. But whether the conditions will last for the rest of the year is still open to debate.

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