Korean petrochemicals firms are downsizing their businesses as they are grappling with lower demand and higher supply of products from China, according to industry sources Thursday.

Lotte Chemical, South Korea’s leading petrochemicals company, has reportedly embarked on the process of selling its Malaysian unit Lotte Chemical Titan Holdings. In addition, its domestic rival LG Chem is said to be in talks with Kuwait Petroleum Corp. to sell a stake in its naphtha cracking center in Yeosu, South Jeolla Province.

Lotte Chemical is currently tapping both local and foreign companies, as well as global private equity firms to sell its share in Lotte Chemical Titan, the company’s manufacturing facility in Malaysia, according to local reports. Lotte Chemical is expected to sell its 74.7 percent in the Malaysian arm, a leading petrochemicals firm in Southeast Asia worth some $566 million based on its market capitalization.

In 2010, Lotte Chemical acquired full ownership of LC Titan from Malaysia’s Chao Group for around 1.5 trillion won ($1.13 billion). In 2017, the company went public in the Malaysian market at a value of some 4 trillion won.

Until the late 2010s, LC Titan posted 300 billion-500 billion won in annual sales. But after years of sluggish sales, the company posted a 61.2 billion won of operating loss in 2023. The market capitalization of the Malaysian arm also plunged to some 744 billion won as of Thursday.

Sources say Korean petrochemicals firms are struggling to compete with Chinese rivals that are expanding extensively in Southeast Asia to make up for losses at home.

To avoid increasing competition in the sector, LG Chem has been also reportedly trying to spin off its second naphtha cracking center plant in Yeosu and sell its stake in the plant. The company hopes to sell a 49 percent stake in the second such plant to the Kuwait energy firm while maintaining the remaining 51 percent stake, local reports said.

Both companies, Lotte Chemical and LG Chem, however, said that nothing has been confirmed yet, dismissing the speculations at least for the moment.

The shift away from basic petrochemicals seems inevitable for the nation's top chemical firms, according to an official from a local petrochemicals firm.

“It is now very difficult to win price competition with Chinese companies when it comes to basic chemical products,” the official said. "Local petrochemical firms will have to shift to next-generation materials to survive in the industry."