DL Chemical delivered improved earnings in the second quarter despite the fallout from Middle East tensions, as robust demand for its key products combined with a recovery at overseas subsidiaries. The company plans to sustain the momentum into the second half while accelerating its shift toward specialty chemicals to strengthen its business fundamentals.

DL Chemical said Wednesday its consolidated second-quarter sales reached 1.45 trillion won ($1.03 billion), with operating profit coming in at 185.1 billion won. Sales rose 32.4% quarter-on-quarter and 25.7% from a year earlier, while operating profit surged 229.4% from the previous quarter and 450.9% on-year. The operating margin stood at 12.7%, up 7.6 percentage points from the prior quarter and 9.8 percentage points from a year ago. The company attributed the sharp profit growth to improved spreads on core products and a recovery in earnings at overseas subsidiaries, including US-based Kraton.

On a standalone basis, DL Chemical posted second-quarter sales of 459.1 billion won and operating profit of 63.4 billion won, up 25.0% and 159.8%, respectively, from a year earlier. The operating margin more than doubled to 13.8% from 6.6% in the second quarter of last year. Sales volumes of polyethylene and polybutene dipped slightly due to utilization rates at some facilities, but higher product prices and wider spreads offset the volume decline. Polybutene in particular maintained strong profitability on favorable supply-demand conditions.

Kraton posted second-quarter sales of 868.2 billion won and operating profit of 104.6 billion won, with sales up 23.8% on-year and operating profit jumping from 4.5 billion won to more than 100 billion won over the same period. Quarter-on-quarter, operating profit rose 234.2%. Both Kraton's polymer and chemical businesses benefited from higher sales volumes, price increases and wider spreads. The operating margin climbed to 12.0% from 0.6% a year earlier.

IBK Investment Securities said in a recent report that Kraton's earnings power has structurally improved this year as one-time costs and fixed-cost burdens have eased alongside gains in both volumes and prices, even as the company continues to trim low-margin businesses and streamline production operations. Kraton closed its Dover, Ohio factory last year and exited some underperforming businesses, while concentrating its efforts on bio-based specialty chemicals and raw material supply chains.

An exterior view of the Cariflex Singapore factory. [Provided by DL Chemical]
An exterior view of the Cariflex Singapore factory. [Provided by DL Chemical]

Cariflex, a subsidiary that produces high-purity synthetic rubber, also returned to growth as inventory adjustments at its customers wound down. Cariflex's second-quarter sales rose 47.6% on-year to 73.8 billion won, while operating profit grew 22.8% to 11.3 billion won over the same period, driven by increased sales of IR latex used in medical gloves and medical devices.

Analysts expect DL Chemical's full-year earnings to improve on last year's results. While the petrochemical sector typically faces a reverse-lagging effect when both product and raw material prices fall simultaneously, polybutene benefits from a relatively constrained supply structure. The company said it plans to focus on managing spreads by product to sustain high profitability.

Kraton's polymer business may face inventory valuation headwinds from falling prices of key raw materials such as butadiene, but its chemical business is expected to continue benefiting from positive inventory effects as crude tall oil prices rise. For Cariflex, second-half sales volumes are expected to rise sharply from the first half, given that major customers tend to concentrate their purchases in the latter part of the year.

No disruptions to raw material supply or production have been reported so far in connection with the situation in Iran. The company acknowledged that a timing gap between when higher raw material costs feed into production expenses and when product prices are raised could temporarily weigh on second-half profitability, but said it plans to offset this through sequential price increases.

DL Chemical has diversified its portfolio around global specialty businesses — polybutene, Kraton and Cariflex — giving it a relatively resilient earnings base against industry cycles, analysts said. "Despite ongoing external uncertainties including the Middle East situation, we expect to sustain year-on-year earnings improvement, supported by polybutene's solid profitability, Kraton's recovery and Cariflex's sales rebound," a company official said. "We will continue strengthening our fundamentals by accelerating our specialty chemicals strategy."


keg@heraldcorp.com