LG Chem Profit Falls on Slowing Plastics Demand in China

LG Chem Ltd. (051910), South Korea’s biggest chemicals maker, reported a worse-than-estimated 42 percent decline in first-quarter profit as demand in China waned for materials used to make plastic and synthetic rubber.

Net income fell to 380.9 billion won ($334 million) in the three months ended March 31 from 656.6 billion won a year earlier, the Seoul-based company said today in a regulatory filing. That compares with the 474 billion won average of 18 analyst estimates compiled by Bloomberg. Sales rose 5 percent to 5.75 trillion won.

Demand for LG Chem’s products waned as China’s economic growth slowed for the fifth straight quarter, expanding 8.1 percent in the first three months. Business may pick up in the current quarter, aided by stable naphtha prices and seasonal demand, LG Chem said today in its statement to investors.

“The earnings were hit by slow demand in China, which is the biggest market,” Kim Seung Woo, an analyst at Samsung Securities Co., said by phone today. “There are few signs to show demand is recovering fast enough.”

LG Chem, which gained 9.5 percent this year, rose 0.1 percent to close at 347,500 won in Seoul trading before the earnings were announced. Forty-one analysts covered by Bloomberg have “buy” ratings on the stock. One has “hold.”

New Accounting

The earnings for the quarter were the company’s smallest since it switched to internationally accepted accounting rules in the first quarter last year, according to data compiled by Bloomberg.

Operating profit, or sales minus the cost of goods sold and administrative expenses, dropped 45 percent to 459.5 billion won, LG Chem said. The petrochemical division, which accounts for 78 percent of sales, had an operating profit of 369 billion won, half that of a year earlier.

Operating profit for LG Chem’s information technologies division, which makes polarizers and other electronics materials, fell to 77.2 billion won from 93 billion won a year earlier. The rechargeable battery business for electric cars and notebooks reported a 69 percent gain in operating profit to 13.5 billion won.

The company is considering lowering its full-year sales forecast for electric car batteries from the 800 billion won projected in January because of weak demand at automakers, Chief Executive Kim Bahn Suk said today. Last year, LG Chem posted 300 billion won in sales of car batteries.

To contact the reporter on this story: Sangim Han in Seoul at sihan@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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