Seoul (Reuters) - South Korea’s Lotte Chemical Corp sees the global petrochemical market remaining ‘stable to firm’ out to 2020 thanks to low oil prices, but its chief executive wants to diversify the company’s feedstock to help it cut costs.
South Korea’s second-biggest petrochemicals maker has benefited from low oil prices as its main feedstock, naphtha, is derived from crude oil, which has a bigger influence on its business than supply and demand, Lotte Chemical Chief Executive Officer Kim Gyo-hyun said at the Reuters Global Commodities Summit.
“By 2020, petrochemical markets are likely to be stable to firm as oil prices are expected to remain stable at $60,” Kim said in his first interview since starting as CEO in March.
“Given that, the profitability of petrochemical makers with naphtha crackers, like us, is likely to change little.”
The petrochemical maker is on track to increase its global ethylene capacity by 40 percent to 4.5 million tonnes per year (tpy) by the end of 2018, expanding its Yeosu plant in South Korea and building an ethane cracker with Axiall in Louisiana.
The plant in Louisiana will help it diversify away from mainly naphtha as a feedstock at its plants.
“Of the expected total capacity of 4.5 million tonnes, if we make 1.5 million tonnes with ethane crackers, it will help us diversify 30 percent of our raw materials to ethane or liquefied petroleum gas,” the chief executive said.
“By doing so, we can make stable profits and become a sustainable petrochemical company even if oil prices rise to $100.”
U.S. ethylene output has been growing rapidly using cheap shale gas, and Kim expects up to 10 million tonnes of new ethylene supply to hit the market in the next two to three years.
But he did not expect that to create a glut, with demand growing at 5 million to 6 million tonnes a year.
“Even if we have 10 million tonnes of U.S. ethylene, the annual demand growth could absorb supplies,” Kim said in an interview held at the Lotte Chemical office in Seoul.
He expected 7 million to 8 million tonnes to be processed into polyethylene with a third of that flowing to Asia.
“But as China’s demand continues to grow, its imports won’t decrease and this means the size of our market won’t be affected,” he said.
The CEO also said the company is looking to expand in Southeast Asia as the markets look attractive, supported by solid demand for petrochemicals, which are mostly used to make plastics.
“We’re thinking of adding one naphtha cracker to secure the Southeast Asian markets,” he said. “We’re eyeing both Malaysia and Indonesia.”
In July, Lotte Chemical listed its Malaysian unit Lotte Chemical Titan Holding Bhd on the Malaysian stock exchange, raising $879 million in the largest float there since 2012.
Reporting By Jane Chung; Editing by Sonali Paul