MOSCOW (MRC) -- Lotte Chemical swung to a third-quarter net loss of South Korean Won (W) 31bn due to poorer margins arising from weaker global demand, said the company.
Net loss came to 31.1 billion won (USD22.4 million), swinging from a profit of 312.8 billion won the previous year, the chemical unit of South Korean retail giant Lotte Group said in a regulatory filing.
Operating loss reached 423.9 billion won for the July-September period, compared with a profit of 288.3 billion won a year ago. Sales rose 27.9 percent to 5.68 trillion won.
Q3 sales at the basic chemicals business rose by 31.2% year on year to W3,587bn following the completion of maintenance at the company's Yeosu complex and the start-up of new production facilities.
The basic chemicals unit swung to a loss of W277bn in the third quarter from a gain of W161bn in the same period a year earlier amid squeezed margins and the delayed impact of lower feedstock costs.
The loss was 70.7 percent lower than the average estimate, according to a survey by Yonhap Infomax, the financial data firm of Yonhap News Agency. "The decline in global demand and negative lag effect from falling naphtha prices weighed on profitability," Lotte Chemical said.
A lag effect refers to profits or losses incurred from the time lag between the purchase of crude oil and the sales of petrochemical products. A negative lag effect means narrowing margins as the price of naphtha, a key raw material for a petrochemical company, has fallen from the time of its last purchase.
Basic materials segment, mainly the naphtha cracking business, posted an operating loss of 227 billion won, with sales at 3.6 trillion won.
Its advanced materials, which include construction and interior materials, sector logged 12.1 billion won in operating profit and sales reached 1.2 trillion won. The profitability for the sector weakened due to global economic slowdown and China's COVID-19 restrictions.
Shares in Lotte Chemical closed flat at 171,500 won on the main Seoul bourse, underperforming the broader KOSPI's 1.15 percent gain. The earnings results were released after the closing bell.
As per MRC, Lotte Chemical has recently informed that that company has decided to proceed with the 5 trillion won (USD4.4 billion) petrochemical project in Cilegon, Indonesia after the previous delay due the pandemic. The project named Lotte Chemical Indonesia New Ethylene (LINE) is to commence construction in 2022.