Market watchers said Sunday that South Korea’s main chemical companies are bulking up by incorporating their sophisticated material-producing subsidiaries in a bid to improve their profitability in the worldwide financial slowdown.
Three chemical companies have announced in recent months that they will absorb their wholly-owned subsidiaries to streamline their chemical companies.
SK Chemicals Co. reported last week that it will absorb Initz Co., a subsidiary that produces polyphenylene sulphide, an engineering plastic used in automotive parts manufacturing.
Lotte Chemical Corp., the No. 2 chemical company in South Korea, announced last month its merger with Lotte Advanced Materials Co. focusing on the business of speciality chemicals.
The merger, to be finished by January 2, 2020, will increase its annual manufacturing ability of polycarbonate to 460,000 tonnes, the world’s third-largest output.
In July, Hanwha Chemical Corp., No. 3 competitor in the nation, said it would acquire Hanwha Q Cells & Advanced Materials Corp., a company that creates lightweight plastics for solar energy systems and electronics.
Analysts said the merger will enable businesses to cut expenses by enhancing leadership effectiveness.
“Companies can cut material procurement expenses,” said Baek Young-chan, an analyst at KB Securities Co. “Through exchanging research and development information on chemical products, they can also generate synergies.”
“The market for petrochemicals is mainly influenced by internal variables such as the global economy, but the company of advanced materials can produce earnings on a stable basis,” said Hanwha Chemical representative.
“It will enable the company to grow its business to sectors requiring advanced materials such as aerospace and potential mobility,” they said. These companies could create further steps to streamline their chemical and material businesses.
“In the wake of Lotte Chemical’s partnership with Lotte Advanced Materials, there is growing speculation that it will also cover Lotte Fine Chemical Co.,” said Han Sang-won, an analyst at Daishin Securities Co.
“It is highly probable that the firm will seek a partnership with Lotte Fine Chemical, but it is too late to judge whether the agreement will be successful because some shareholders might resist it.”