A view of the petrochemical complex in Yeosu, South Jeolla Province. [Yonhap]
A view of the petrochemical complex in Yeosu, South Jeolla Province. [Yonhap]

Some petrochemical companies have seen a temporary improvement in financial health amid the Middle East conflict. The industry appears to be benefiting from a raw materials supply shortage — a windfall that has also helped ease borrowing burdens ahead of a broader sector restructuring. Analysts warn, however, that the gains are fleeting and that companies must urgently shift their business portfolios toward higher-value products to restore fundamental competitiveness.

Korea Ratings said Tuesday that its key monitoring indicators (KMI) showed that debt levels at SK Geocentric and Lotte Chemical had entered the range that could support an upgrade of their credit rating outlooks from "negative" to "stable." A credit rating outlook is a separate indicator from the rating itself, projecting how the rating may change over the next one to two years.

According to Korea Ratings, Lotte Chemical's net debt-to-EBITDA ratio fell from 19.7 times at end-2025 to 4.7 times as of March this year — a reduction of roughly 15 times in debt relative to cash generation. The figure had surged from 0.1 times at end-2021 to 13.7 times in 2022 and 16.4 times in 2023. With the latest reading, Lotte Chemical has returned within the 6-times threshold required for a rating outlook recovery for the first time in five years.

SK Geocentric's debt dependency ratio — total borrowings as a share of total assets — fell 4.2 percentage points, from 34.6 percent at end-2025 to 30.4 percent as of March this year. The ratio had climbed from 31.0 percent at end-2021 to 34.5 percent at end-2022 and peaked at 35.1 percent in 2024 before reversing course. The threshold for a rating outlook recovery at SK Geocentric is a debt dependency ratio below 40 percent.

HD Hyundai Chemical's debt dependency ratio remains elevated but has also begun to turn lower. As of March, its net debt dependency ratio stood at 67.0 percent, down 5.2 percentage points from 61.8 percent at end-2025.

An aerial view of the Ulsan-Mipo Industrial Complex. [Provided by SK Energy]
An aerial view of the Ulsan-Mipo Industrial Complex. [Provided by SK Energy]

The debt indicators released Tuesday reflect the fallout from the Middle East war that broke out in March this year. Petrochemical companies benefited from a global crude oil supply crunch triggered by Iran's blockade of the Strait of Hormuz. They capitalized on a "lagging" effect — selling products made from relatively cheap raw materials purchased at end-2025 at elevated prices during the supply shortage.

As a result, Lotte Chemical, LG Chem's petrochemical division and Hanwha Solutions' chemical division all swung to profit. For Hanwha Solutions, it marked the first return to profit since the third quarter of 2023. An industry official said the lagging effect was expected to continue feeding into earnings through the second quarter.

However, if supply chains stabilize as the conflict moves toward a ceasefire, companies could face a "reverse lagging" effect in the second half. Unlike the first half, they may then be forced to sell products made from expensive raw materials at lower prices.

Even so, analysts say that regardless of earnings trends, financial health in the petrochemical sector could continue to improve during the restructuring process, supported by government financial assistance.

Kim Sang-man, a researcher at Hana Securities, said that "even if the ultimate financial burden falls on parent shareholders, the capital and debt restructuring effects included in the restructuring support package could more than offset the limited business synergies." He added that while "the scope for earnings improvement among petrochemical companies is not large given the operating outlook, the current restructuring and government support are expected to help defend the credit trajectory of the sector, which has been on a one-way downward path."

An industry official stressed that "even after restructuring, large-scale R&D and capital investment will be needed to shift toward higher-value-added products, so restoring financial capacity to raise cash is absolutely essential."


klee@heraldcorp.com