Tough Call: JG Summit shuts down struggling business, layoffs on the horizon

Conglomerate JG Summit Holdings is cutting losses in its struggling petrochemicals business to focus on more profitable ventures while waiting for the industry to recover.

Market experts see this as the right move, while recognizing this was a tough call for the Gokongwei Group, which kept the business afloat through billions of pesos in losses amid an oversupply from Chinese producers. 

‘Best decision’ 

“It’s the best decision under the circumstances,”  Juan Paolo Colet, managing director at China Bank Capital, told InsiderPH

“The business has long been a heavy drag on the Gokongwei Group. After years of massive losses and no clear prospects for a sustainable turnaround, there was really no other rational choice but an indefinite shutdown. The group can now channel more time and resources to their other businesses,” he added.

Roots in the early 1990s 

The group announced on Thursday that JG Summit Olefins Corp. will be on an “indefinite commercial shutdown” due to “persisting unfavorable market conditions in the global petrochemical industry.”

The company, whose roots stretch back to the early 1990s, operates the country’s only naphtha cracker plant. It produces polyethylene (PE) and polypropylene (PP), which are used in the packaging, automotive, and construction industries. 

Global oversupply 

“We think that this is a good move for JGS given the fact that the segment has been dragging earnings for several years already,” Joey Cipres, research analyst at AP Securities, told InsiderPH

Citing their report last Dec. 18, he also pointed to the “persistent global oversupply of polymers, which continued to drive margins to historic lows.”

“Additionally, management projects that global demand for petrochemicals will only catch up to supply near the end of the decade, which leads to our tempered expectations for this segment over the next five years,” he added.

Looming layoffs

In a report last Jan. 28, commodities-focused publication Argus Media reported that employees of the petrochemical producer were told of potential layoffs as a result of the shutdown.

It added that the challenges facing JG Summit Olefins were similar to those of producers in neighboring countries in the region.

Not just in the Philippines

Southeast Asian polymer producers have been facing strong competition from imported resins and struggling with weak profitability since 2022.

“[Polyethylene and polypropylene] capacity additions in China since 2020 have led to an oversupply of resins and strong global competition, weakening polymer production margins,” it said.

“The nation will be fully reliant on PE and PP imports after the indefinite closure of JG Summit's petrochemical complex,” the report added. 

Buy rating

“JGS shares have been badly beaten and battered for quite some time already, and we think that current price levels are good enough for potential investors to start scooping up shares slowly,” Cipres noted.

He said the company has a “buy” rating with a consensus target price of P32.52 per share, which is well above the current price of P17.28 apiece.

About the author
Miguel R. Camus
Miguel R. Camus

Miguel R. Camus has been a reporter covering various domestic business topics since 2009.

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