Lotte Chemical's synthetic rubber affiliate Lotte Versalis Elastomers (hereafter Lotte Versalis) is expecting to post its first-ever operating profit. Lotte Chemical ambitiously entered the synthetic rubber business by partnering with an Italian petrochemical company, but it has remained in the red for years due to quality issues. With signs of an earnings turnaround emerging, Lotte Chemical plans to inject additional capital into Lotte Versalis and nurture it as a next-generation growth engine.
According to the petrochemical industry on the 10th, Lotte Versalis is likely to have turned to an operating profit on a consolidation basis last year. Established in 2013, Lotte Versalis had not posted a profit even once since it began commercial production in 2019. Its operating losses in 2023 and 2024 were 36.8 billion won and 24.7 billion won, respectively, narrowing the deficit.
Lotte Versalis is a joint venture created with Lotte Chemical and Italy's petrochemical Versalis each investing 50% to enter the synthetic rubber business. Versalis, which owns olefin and synthetic rubber plants in Europe, is a comprehensive petrochemical company with leading technology in synthetic rubber.
Lotte Versalis built production facilities for high-performance synthetic rubber, including synthetic rubber solution styrene-butadiene rubber (SSBR) and ethylene propylene diene monomer (EPDM), on the site of Lotte Chemical's Yeosu plant.
SSBR, one of the main products, is primarily used as a material for high-performance tires. It has better wear resistance than conventional rubber products, making it suitable for electric vehicles, which are about 30% heavier than internal combustion engine cars. With excellent road grip and low rolling resistance, it improves fuel efficiency.
However, SSBR is said to be a field where latecomers like Lotte Versalis find it difficult to secure new customers. In the case of tires, because material quality is directly linked to safety, buyers often judge it better to continue transactions with existing suppliers. In Korea, Kumho Petrochemical, the No. 1 company by market share in synthetic rubber, also dominates SSBR manufacturing and sales.
Recently, SSBR prices have surged, and Lotte Versalis appears to have gained competitiveness as well. As the price of butadiene, a key raw material for synthetic rubber, has soared, SSBR prices are rising in tandem. According to Chinese market research firm Sunsirs, the price of butadiene, which was $950 per ton at the end of last year, has recently approached $1,300.
Lotte Chemical plans to nurture Lotte Versalis as a new growth driver. On the 4th, it also injected 30 billion won through a rights offering. The total amount Lotte Chemical has put in through 10 rights offerings so far comes to 255 billion won.
The petrochemical industry outlook is negative, but there are also projections that the synthetic rubber sector will grow. Lee Jin-myeong, a senior analyst at Shinhan Investment & Securities, said, "The chemical industry has fallen into a down cycle, but the synthetic rubber market will take a different path," adding, "With limited capacity on the supply side, the supply-demand situation is deteriorating, making it highly likely that the uptrend in selling prices will continue."
A source in the petrochemical industry said, "The larger the electric vehicle market grows, the more SSBR sales increase," adding, "Margins will matter, but it is interpreted as a positive signal in that it has become possible to recoup the expenses invested in Lotte Versalis."