Lotte Chemical Returns to Profit, But Analysts Warn of Fifth Straight Annual Loss

[Korea Financial Times, Gwak Horyung] Lotte Chemical posted a second consecutive quarter of operating profit, driven by strong performance in its high-value-added businesses. However, as raw material prices stabilize and the windfall from wartime demand fades, coupled with the effects of falling oil prices, the company is likely to swing back into a loss in the second half of the year. In response, Lotte Chemical is pushing ahead with a domestic NCC (naphtha cracking center) business restructuring centered on its Daesan and Yeosu plants, and is putting its full effort into improving its financial structure, including reducing net borrowings.

Lotte Chemical reported second-quarter 2026 revenue of KRW 5.5864 trillion and operating profit of KRW 110.1 billion. Compared with the second quarter of 2025, revenue rose 39.2% and operating profit swung from a loss to a profit.

Compared with the first quarter of 2026, revenue and operating profit increased 13.9% and 49.9%, respectively. This marks two consecutive quarters of profitability, with an operating margin of 1.9%, up 0.4 percentage points from the previous quarter.
Second-quarter earnings were led by high-value-added businesses such as advanced materials and fine chemicals. Although these two businesses accounted for only about 30% of total revenue, they generated more than twice the company's overall operating profit.

Specifically, the Advanced Materials division posted revenue of KRW 1.1551 trillion and operating profit of KRW 132.5 billion, for an operating margin of 11.5%. Lotte Fine Chemical posted revenue of KRW 586.3 billion and operating profit of KRW 61.9 billion (an operating margin of 10.6%), with its operating margin nearly doubling from the prior quarter.

The improved profitability was driven by widening spreads (the margin between final product prices and raw material costs) on key products, as demand for inventory stockpiling expanded amid the fallout from the U.S.-Iran war. The company also benefited from the won-dollar exchange rate, which spiked to around KRW 1,500 in May and June.

The Basic Materials division posted revenue of KRW 3.9403 trillion and operating profit of KRW 2.3 billion. Its operating margin held in positive territory at 0.1%, but fell 1.2 percentage points from the previous quarter, which had benefited from wartime demand.

According to the company, favorable "lagging effects" continued through April, but a reverse-lagging effect emerged in May and June as oil prices temporarily fell. As a result, the company posted total inventory valuation losses of roughly KRW 200 billion in the second quarter. It also incurred a one-time cost of KRW 45 billion from scheduled maintenance at the Yeosu NCC (naphtha cracking center) facility. Lotte Chemical is working to expand the proportion of LPG feedstock used in place of naphtha, given growing uncertainty in naphtha supply; as of July, the LPG input ratio stood at 37%.
Lotte Energy Materials, the company's battery materials subsidiary (which produces copper foil for secondary batteries, among other products), posted revenue of KRW 194.2 billion and an operating loss of KRW 16.9 billion. The unit has now posted losses for eight consecutive quarters since the second quarter of 2024. Its operating loss margin widened to 8.7%, up 5.6 percentage points from the previous quarter. While sales volume growth lifted revenue by 21.5% quarter-on-quarter, profitability declined as the favorable lagging effect from a prior spike in copper prices (a key raw material) disappeared.


Lotte Chemical is expected to swing back into a loss in the second half of the year, once the wartime windfall effect fully dissipates. Shinhan Investment Corp., which published a corporate analysis report on Lotte Chemical on August 10, estimated the company's second-half operating loss at approximately KRW 290 billion — exceeding the KRW 180 billion in operating profit recorded in the first half. This would mark a fifth consecutive year of annual losses, from 2021 through this year.

Lotte Chemical says it is focusing immediately on improving its financial structure. As of the end of the second quarter, its debt ratio stood at 76.8%, up 0.8 percentage points from the previous quarter. Net borrowings also rose by about KRW 200 billion to approximately KRW 8.1 trillion.

The company expects the benefits of its financial restructuring to materialize once the merged entity being formed as part of its domestic NCC business reorganization is finalized. Under this strategy, related debt transfers are expected to reduce the consolidated debt ratio while also improving operational efficiency. A merged entity combining HD Hyundai Chemical and Lotte Chemical's Daesan plant is set to launch in September. Meanwhile, the integration of the Yeosu plant with Yeochun NCC, whose business restructuring plan was approved in July, is expected to be completed in early 2027.

The company is also pursuing investment centered on advanced materials to strengthen its core business competitiveness. Based on its Yulchon compounding plant — targeted for completion and commercial operation within the year — Lotte Chemical plans to reinforce its specialty business centered on functional materials.

"Amid uncertainty in the domestic and international business environment surrounding the petrochemical industry, we are steadily pursuing business restructuring to strengthen competitiveness, upgrade our business portfolio toward high-value-added products, cultivate future growth businesses, and improve our financial structure," Lotte Chemical said. "We will continue to respond flexibly to market changes and build a foundation for sustainable growth to enhance corporate value."

Gwak Horyung (horr@fntimes.com)