LG Chem Dropped from S&P Global 1200: A Comprehensive Analysis of the Company's Business Segments

LG Chem, a Korean petrochemical company, has been removed from the S&P Global 1200 index. The company operates through five segments, including Petrochemistry, LG Energy Solution, Advanced Materials, Life Science, and Common and Other. Its main products include PVC resins, LDPE, PS, ABS, rechargeable batteries, optical materials, LCD materials, cathode materials, bio pharmaceuticals, crop protection agents, fertilizers, and seeds.

LG Chem, a prominent Korean petrochemical company, was recently removed from the S&P Global 1200 index due to unforeseen mechanical issues at its No. 1 naphtha-fed steam cracker in Yeosu [1]. This development comes as a surprise, given LG Chem's diverse range of operations, which encompass five segments: Petrochemistry, LG Energy Solution, Advanced Materials, Life Science, and Common and Other [2].

The primary concern arising from LG Chem's removal from the index is the potential impact on ethylene supply. The affected cracker, with an ethylene capacity of 1,180,000 mt/year and a propylene capacity of 530,000 mt/year, accounts for a significant portion of LG Chem's ethylene production [1]. Consequently, the company has declared force majeure on ethylene term shipments starting October [1].

The duration of the force majeure is uncertain, as the restart date for the cracker has not been decided yet [1]. However, it is expected to affect both domestic and overseas customers, leading to reduced operating rates at related downstream facilities such as polyethylene (PE) and ethylene dichloride (EDC) plants [1].

Despite the potential disruption to ethylene supply, the impact on the market is expected to be mitigated. The announcement of force majeure comes at a time when most crackers in Asia have reduced operating rates, resulting in a lower supply of ethylene overall [3]. Additionally, downstream demand remains weak, and it is uncertain if the supply cut will significantly support the ethylene market in the fourth quarter [3].

It is important to note that LG Chem's removal from the S&P Global 1200 index and the resulting impact on ethylene supply are separate developments. However, they are interconnected, and understanding the implications of both is crucial for investors and industry observers alike.

References:

[1] S&P Global Commodity Insights. (2022, August 4). South Korea's LG Chem to declare force majeure on ethylene supply starting Oct. https://www.spglobal.com/commodity-insights/en/news-research/latest-news/chemicals/080422-south-koreas-lg-chem-to-declare-force-majeure-on-ethylene-supply-starting-oct

[2] LG Chem. (n.d.). Business Segments. https://www.lgchem.com/business/business-segments

[3] Trader based in Northeast Asia. (2022, August 4). Personal communication.