JG Summit Holdings Inc., the flagship of the Gokongwei Group, has announced the shutdown of its petrochemical business, JG Summit Olefins Corporation (JGSOC), due to substantial losses incurred amid challenging market conditions.
In a statement, JGSOC said, "Given persisting unfavorable market conditions in the global petrochemical industry, JG Summit Olefins Corporation (JGSOC) is now on an indefinite commercial shutdown."
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During the shutdown, the firm will continue to sell from its existing product inventory. The liquefied petroleum gas (LPG) trading operations of Peak Fuel Corporation, a subsidiary of JGSOC, will remain unaffected.
"JGSOC continues to evaluate various options to mitigate the adverse effects of challenging market conditions and will make the appropriate decision in due course," the statement added.
Stock market analysts previously reported that JG Summit was considering various options for JGSOC, including a temporary shutdown or even divesting from the business.
"Management noted that the petrochemical industry continues to face significant challenges, marked by continued softness in demand and diminishing margins," said COL Financial Research Analyst Paolo Miguel Manansala.
He noted that JGSOC's difficulties "may be more structural than cyclical in nature, as naphtha-based crackers are less favored compared to the more cost-efficient ethane crackers."
"Furthermore, management is projecting that global demand for petrochemicals will only catch up to supply closer to the end of the decade. Adding to the pressure, polymer—a major by-product—has seen its prices drop, further crimping overall petrochemical margins," Manansala said.
Amid the challenging environment, Manansala said JG Summit has decided to implement a four-month commercial shutdown starting in January 2025 as they strategize on the best course of action for the petrochemical business.
He noted that JGSOC's EBITDA losses for the first nine months of 2024 reached P3.8 billion, a significant increase from the P2.6 billion net loss during the same period last year.
"Management is actively exploring cost-cutting measures to reduce cash burn, providing the company with more time to identify a path to profitability or at least break even. Management has also looked into the possibility of optimizing production for its more profitable products, including aromatics, butadiene, and LPG trading, as JGSOC’s losses are limited to the polymer by-product," Manansala said.
If the shutdown proceeds, Abacus Securities Corporation said the impact will be felt beginning in the first quarter of next year, and this will "deplete its topline yet again but could lessen some of its losses."
Abacus Securities earlier reported that JG Summit "implied that all options are on the table with regard to JGSOC… When we asked if there has been any discussion of divesting from petrochem, the reply was 'we have been evaluating various strategic options on how to minimize the risks related to our petrochemical exposure. We will make the necessary announcements in due course.'"
Abacus said JG Summit's support for JGSOC will total P50.3 billion from the fourth quarter of 2022 until the last quarter of next year.