As the war between the United States and Iran drags on and domestic petrochemical corporations see a temporary improvement in earnings, creditor banks that moved to provide financial support appear to be tapping the brakes. The plan to finalize financial support measures for four petrochemical corporations, including Yeochun NCC, is also expected to slip past this month.
According to the financial sector on the 18th, creditor financial institutions including Korea Development Bank are conducting on-site due diligence on four corporations: Yeochun NCC, Lotte Chemical, Hanwha Solutions, and DL Chemical. Earlier, on the 3rd of last month, the creditor group selected these corporations as targets for business restructuring and launched due diligence to finalize financial support measures.
The creditor group was initially said to have planned to complete the due diligence by the end of this month and draw up financial support measures. The measures include new funding support for business restructuring and extensions of existing loan maturities and repayment grace periods.
With first-quarter earnings improving for petrochemical corporations, the creditor group is considering slowing the pace of discussions on financial support measures. Providing support in the trillion-won range to corporations posting profits is proving burdensome. Also, because the previous business restructuring scenario was drawn up on the premise of a prolonged deficit, revisions to the financial support measures are needed.
Lotte Chemical posted an operating profit of 73.5 billion won in the first quarter of this year, returning to the black. The chemical division of Hanwha Solutions and SKC's chemical business also recorded operating profits of 34.1 billion won and 9.6 billion won, respectively. The utilization rates of the naphtha cracking centers (NCC) held by these corporations are also gradually rising.
This is due to a "lagging effect" (profit fluctuations caused by the time gap between raw material purchases and petroleum product sales) stemming from the prolonged Middle East war. Profit margins rose as petroleum products produced using raw materials purchased before the outbreak of the U.S.-Iran war were sold at higher prices after the war. The market expects this trend to continue through the second quarter.
A creditor group official said, "Due diligence is underway, and we are watching the situation as they say petrochemical corporations' earnings are recovering due to the Middle East war. It does not seem the financial support measures will be finalized immediately."
From the second half, many expect a reverse lagging effect. If products are made with materials and supplies purchased when oil prices spiked because of the Middle East war and then sold when prices stabilize in the second half, profitability could worsen. Dubai crude, the international oil benchmark, surged to $168.75 per barrel as of Mar. 23 but fell to $105.50 as of May 14.
Kim Hyun-tae, an analyst at BNK Investment & Securities, said, "If the sharply risen product prices fall, a reverse lagging effect could take hold in earnest, raising concerns of a significant deterioration in results. With capacity additions in China and the Shaheen Project slated to come online, it is hard to view market conditions in 2027–2028 positively."