JG Summit to Temporarily Shut Down Petrochemical Plant
JG Summit to Temporarily Shut Down Petrochemical Plant

JG Summit to Temporarily Shut Down Petrochemical Plant

  • 19-Dec-2024 2:20 PM
  • Journalist: Stella Fernandes

JG Summit Holdings Inc., the flagship conglomerate of the Gokongwei Group, is planning to implement a four-month shutdown of its petrochemical business beginning January 2025.

The temporary closure will affect JG Summit Olefins Corporation (JGSOC), which operates one of the group’s core petrochemical plants. JGSOC is Philippines' sole integrated petrochemical producer, handling the entire process from naphtha cracking to polymer production that supplies the domestic manufacturing industry.

According to analysts, the shutdown is a response to the ongoing challenges in the demand plagued industry.

In a recent financial update, JG Summit reported a significant increase in losses from its petrochemical business. The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for JGSOC reached a staggering P3.8 billion in losses for the first nine months of 2024, compared to a P2.6 billion net loss in the same period the previous year. These mounting losses are putting additional pressure on the conglomerate to restructure its operations in order to stem the financial bleed.

As part of its cost-cutting strategy, JG Summit is looking at ways to optimize production, particularly focusing on more profitable products such as aromatics, butadiene, and LPG trading. JGSOC’s losses have largely been confined to the polymer segment, which has been particularly hard-hit by falling prices.

The four-month shutdown, which is expected to begin in January, will likely have an immediate impact on JG Summit’s revenue for the first quarter of 2025. The ongoing struggles in the petrochemical sector are expected to drag on JG Summit’s overall performance in the short to medium term. The company’s petrochemical division has become a significant weight on its financials, with the industry expected to remain weak for the foreseeable future.

The decision to halt operations for a prolonged period reflects the difficulties JG Summit has been facing in its petrochemical business. Reports point out that the petrochemical industry is experiencing significant challenges, notably weaker demand and reduced profit margins. These issues are more structural than cyclical, with traditional naphtha-based crackers — which JGSOC relies on — becoming less competitive compared to more cost-efficient ethane crackers, which are increasingly favored by global petrochemical players.

The petrochemical production has also been under pressure, with product prices falling sharply. Industry reports highlight that the oversupply in the market is expected to persist for several more years, with demand only expected to catch up toward the end of the decade. This extended period of excess supply is further exacerbating the downturn in the sector, making it difficult for companies like JGSOC to generate sustainable profits.

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