South Korea’s two leading petrochemical players LG Chem Ltd. and Lotte Chemical Corp. have been in a horserace over the top place, and the industry is betting that LG Chem will come in first this year due to its edge in battery business.

According to market data provider FnGuide on Sunday, LG Chem is expected to report an operating profit of 2.801 trillion won ($2.5 billion) this year versus Lotte chemical’s 2.799 trillion won. They have been in a tight race over the recent years and the ranking can change any time depending on sales results of their petrochemical products. But market analysts took LG Chem’s side this year, citing the firm’s diversified business portfolio that can generate higher profitability.

Lotte Chemical had outperformed LG Chem in operating profit for the past five quarters since January 2016, riding on the booming petrochemical industry, but it was beaten by LG Chem in the second quarter ended June 2017. Both chemical leaders’ operating profit broke the 1-trillion-won threshold as of the end of the first half of this year, but LG Chem earned 76.7 billion won more than Lotte Chemical.

Market analysts attribute the recent advance of LG Chem to its diversified business portfolio. Lotte Chemical heavily relying on the petrochemical business has suffered from a sharp fall in profitability of chemical products in the second quarter, whereas LG Chem could offset the loss from its petrochemical division with other businesses.

In particular, its battery business that had remained in the red since the company launched the business finally swung to profits in the second quarter, helping the company beat Lotte Chemical. LG Chem produces small-sized batteries for mobile phones and notebook computers and medium- and large-sized batteries for electric cars and energy storage system (ESS). An official from the company said the company’s efforts to seek new markets for its medium and large-sized batteries beyond China have finally produced tangible results.

In response to fierce competition from Chinese rivals and Beijing’s retaliatory actions against the Seoul’s installation of U.S. anti-missile shield, LG Chem has been actively seeking to expand its presence in North America and Europe. Such a move has helped the company report profits in its ESS business, leading its overall business division to swing to a 7.5 billion won profit for the second quarter this year.

“The company’s battery business is expected to remain in the black in the third quarter as the ESS market is entering its peak season and demand for small batteries in the emerging market are growing,” said Yoon Sung-no, a researcher from Daishin Securities Co.

Its mainstay petrochemical business is also expected to enjoy another strong season. In particular, the company’s super absorbent polymer (SAP) and ABS are high-value added products, helping it earn higher profitability than Lotte Chemical that mainly produces ethylene, benzene and butadiene that Chinese rivals can easily catch up.

Betting big on the diversified business portfolio, foreign investors have net purchased 470 billion won worth shares of LG Chem as of last Friday, while net selling 114.1 billion won shares of Lotte Chemical.

As of 2:00 p.m. Monday, shares of LG Chem were 0.43 percent up at 350,500 won, while shares of Lotte Chemical were 0.89 percent up at 396,500 won from the previous session.

By Moon Il-ho

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]