South Korea’s petrochemical industry is facing one of its toughest periods in recent memory, as a combination of global oversupply, geopolitical tensions, and shifting market dynamics puts the sector’s giants under intense financial strain. Major players like LG Chem and Lotte Chemical are struggling to regain their footing, while HD Hyundai Chemical emerges as a rare bright spot, signaling that fortunes in the industry are anything but uniform.
At the heart of the turmoil is the industry’s deep reliance on raw materials from the Middle East—a vulnerability thrown into sharp relief by the outbreak of war in Iran in March 2026. According to Kim Hoseop, a researcher at Korea Ratings, companies such as Lotte Chemical, Yeochun NCC, and LG Chem have been forced to drastically reduce operating rates since March and have even suspended some production lines, running at the bare minimum just to stay afloat. Speaking at the 2026 first half KIS Credit Issue Seminar in Yeouido, Kim warned, “The reduction in operating rates is expected to decrease profitability and increase liquidity burdens.”
Business restructuring is underway across the sector, but the recovery of robust financial structures will take time. Compared to the end of 2022, all major petrochemical companies have tumbled out of the ‘stable’ profitability zone, now sitting in the ‘watch to warning’ categories as of late 2025. Kim pointed out that the effects of restructuring on financial burdens will vary by company. “LG Chem and Lotte Chemical, as surviving entities, face difficulties in credit rating recovery due to persistent real financial burdens despite reduced losses,” he said. In contrast, the merged entity HD Hyundai Chemical is expected to see its credit rating improve, thanks to solid gains in its financial structure and a more diversified product portfolio.
LG Chem’s recent financials paint a sobering picture. On April 15, 2026, financial data provider FnGuide estimated that LG Chem would post sales of 11.1221 trillion KRW and an operating loss of 189 billion KRW for the first quarter of 2026—a drop in sales of 8.6% compared to the same period last year. This marks two consecutive quarters of operating losses, following a 410 billion KRW loss in the fourth quarter of 2025. The company’s petrochemical division is expected to narrow its losses in the first quarter, compared to a 239 billion KRW loss in the previous quarter, largely due to a temporary lag effect: as raw material prices spiked after the Iran war, the timing mismatch between naphtha purchases and product sales gave a fleeting boost to margins.
But this respite is unlikely to last. The spike in naphtha prices means that producing goods with post-crisis supplies is now a losing proposition, and analysts expect LG Chem’s performance to worsen sharply from the second quarter onward. The company has already taken drastic action, halting operations at its Yeosu naphtha cracking plant No. 2 as of March 23, 2026. Korea Ratings, in a report released April 14, warned that LG Chem’s consolidated profitability is set to decline further this year, citing “ongoing unfavorable supply conditions and increased risks and burdens from Middle East raw material procurement and operating rate adjustments.”
The market has responded to these headwinds with a wild ride for LG Chem’s stock. After starting the year at around 320,000 KRW, shares soared to 420,000 KRW by late February—buoyed by hopes that the worst was over, thanks to government-led restructuring of the domestic naphtha cracking industry and signs of recovering demand from China. But the onset of the Middle East crisis sent shares tumbling to 290,000 KRW; as of April 15, the stock had clawed back some ground, trading at around 350,000 KRW.
In response to the supply crunch, LG Chem has scrambled to secure alternative sources of naphtha. Working with the government, the company imported 27,000 tons of Russian naphtha in late March and has managed to secure up to 2.1 million tons—about one month’s worth of domestic naphtha cracking complex (NCC) imports—by the end of 2026. Still, the company is walking a tightrope, deliberating how to operate its remaining naphtha cracking plants in Yeosu and Daesan, and weighing the merits of further production cuts or a pivot toward higher-value products.
Restructuring discussions are ongoing, particularly around LG Chem’s aging Yeosu No. 1 plant, which began operations in 1991. The company is in talks with GS Caltex about consolidating NCC operations, with an eye toward slashing operating rates and focusing on high-margin synthetic resins. Yet convincing Chevron, which owns half of GS Caltex, remains a significant hurdle.
At the company’s most recent shareholder meeting in March, LG Chem President Kim Dong-chun acknowledged the gravity of the situation. “The most important task facing LG Chem today is to strengthen the fundamental competitiveness of our existing business and to accelerate the shift toward a future-oriented portfolio,” he stated. “We expect to overcome the current difficulties within two to three years.”
Lotte Chemical, meanwhile, has been equally aggressive in its restructuring efforts. The company has split its Daesan and Yeosu plants and merged them with HD Hyundai Chemical and Yeochun NCC, respectively. However, the real impact on financial burdens remains limited. Lotte’s overseas expansion—once touted as a growth engine—has turned into a drag. Its massive production bases in Malaysia, Indonesia, and the United States are now mired in losses, battered by global oversupply and weak demand. The company’s use of high-interest asset securitization, including purchasing card securitization and PRS liabilities that now exceed 1 trillion KRW, poses a structural risk if this trend continues.
In stark contrast, HD Hyundai Chemical is emerging as a rare winner in this challenging environment. Korea Ratings analysts expect the company’s credit rating to improve, thanks to increased operating rates and annual cost savings of over 200 billion KRW from the "Daesan No. 1 project." The expansion of specialty products such as EVA (used in solar materials) and secondary batteries is also expected to boost operating profits. Debt transfer related to the Daesan plant—about 1.5 trillion KRW—and a 1.2 trillion KRW shareholder capital increase, along with perpetual bond refinancing, are all helping to ease the company’s financial burdens.
Kim Hoseop summed up the sector’s predicament: “The necessity of business restructuring to mitigate supply chain risks has increased, but the overall restructuring effects in the domestic petrochemical industry will emerge only slowly. We will continue to monitor the impact on credit ratings, focusing on trends in production suspensions and how companies respond to liquidity pressures.”
As the industry navigates these choppy waters, it’s clear that the road to recovery will be uneven. While some companies are weighed down by structural challenges, others are finding ways to adapt and even thrive. For now, the fate of South Korea’s petrochemical giants hangs in the balance, with every strategic decision carrying outsized consequences for their future.