[Edaily Marketin Reporter LEE GEON-EOM ] NICEHoldings announced on the 23rd that it has maintained the credit rating of LOTTE CHEMICAL CORPORATION(011170)’s unsecured bonds at ‘AA-’ but changed the rating outlook from ‘Stable’ to ‘Negative.’ A negative outlook indicates a high likelihood of a downgrade within the medium term.

NARAT credit rating agency cited the following as the main factors behind this downgrade in the rating outlook: △ a temporary improvement in first-half performance following a large net loss in 2025; △ the possibility that the burden of global oversupply will resurface in the second half; and △ the limited extent to which debt burdens can be alleviated through internal operating cash flow generation.

Kim SEOYON, a senior researcher at NARAT, stated, “LOTTE CHEMICAL CORPORATION’s performance was significantly weak, recording an operating loss of 9431억 won in 2025 and a net loss of 2.5조 won due to factors such as impairment losses,” and “The return to an operating profit in the first quarter of this year and the improvement in second-quarter performance were primarily driven by a temporary improvement in supply and demand due to supply disruptions originating in the Middle East, as well as positive lag effects,” she assessed.

In fact, while supply has increased since May due to the influx of alternative raw materials and a recovery in operating rates, the ethylene spread is falling rapidly as preemptive inventory buildup has come to an end. The path to a recovery in profitability going forward is also expected to be challenging. The company is more sensitive to fluctuations in the olefin market than other petrochemical firms; analysts suggest that if major producing countries, such as China, continue to expand production and exports, profitability is likely to decline again in the second half of the year.

The trend toward easing debt burdens based on internal operating cash flow is also expected to improve only gradually. The debt burden may be partially alleviated once approximately 1.6 trillion won in debt is transferred to the merged entity during the merger of LOTTE CHEMICAL CORPORATION Daesan Petrochemical and HD HYUNDAI Chemical, scheduled for September, and once the restructuring related to Yeocheon NCC is completed. However, the burden of a 600 billion won rights offering for the merged entity, along with higher interest expenses and working capital pressures stemming from oil price volatility, is expected to persist.

Senior Researcher Kim analyzed, “Considering the possibility of declining profitability in the second half of the year, we believe that the ability to secure excess cash flow and reduce debt through internal operating cash generation—excluding external cash inflows such as asset sales—will be limited.”

Accordingly, the path for implementing structural reforms in the petrochemical industry going forward is identified as a key challenge. LOTTE CHEMICAL CORPORATION is set to launch an integrated NCC entity with HD HYUNDAI Chemical within the Daesan Complex this coming September. Discussions are also underway regarding the launch of an integrated entity with Yeocheon NCC within the Yeosu Complex. The consolidation of facilities, adjustments to product lines, and changes in operating rates could have a significant impact on the company’s business portfolio and financial structure.

High volatility arising from the normalization of supply chains following the war is another variable. Spreads for ethylene-based products have been falling rapidly recently, and even aromatic and propylene-based products, which have maintained robust levels, are likely to face increasing adjustment pressures with a time lag.

Senior Researcher Kim added, “The path of spread adjustments will vary depending on the speed of production facility recovery and the inventory management strategies of demand-side companies following the end of the war,” noting, “It is expected that a new, normal post-war equilibrium point will only become apparent after the actual recovery of supply and the inventory adjustment process have been confirmed.”