Lotte Chemical Corporation (A011170) Earnings Call Transcript & Summary

Good afternoon. I am [ Hyun Kim ], Head of the IR team at Lotte Chemicals. I'd like to thank everyone for your interest in Lotte Chemicals and for taking part in today's event. Starting from Q3 of 2021, we will be presenting our earnings release via audio webcasting so that more market participants can join in, so we ask for your continued interest and support going forward. We now begin the 2021 Q3 earnings presentation conference call. Today, we'll first introduce the senior management members who are with us, and afterwards, we'll walk you through the business results of Q3 and the outlook for Q4. And then we'll hear from [ Yong-Seok Kim ], the EVP of ESG Strategy Group, who will present on the business outlook for 2022, and then we will proceed to a Q&A session. The earnings presentation and business outlook will be presented through simultaneous interpretation, while consecutive interpretation will be provided for the Q&A. And now let me introduce to you the senior management members who are joining us today. First, [ Yong-Seok Kim ], the EVP of ESG Strategy Group; [ Sung Won Jong ], Director of Corporate Planning Division; [ Chong Won Kang ], Director of Finance and Accounting; and [ Chong Min Lim ], EVP of Business Development Division; and [ Kang Shi Co ], EVP of Monomer Division; and [ Ching Yong Kim ], Director of Olefin Division; [ Kang Song Pei ], Director of Polymer Division; [ Ming Jong Huang ], Director of Aromatics Division; [ Ki So Park ], Director of Basic Chemical Strategy Management division; and [ Hak Chan Song ], Director of Advanced Materials Strategy Management Division, is also with us. And from LC Titan, we have with us [ Philip Kong ] who is Executive Vice President of Corporate Planning. First, on Page 4 of the presentation material, let me walk you through the business results of Q3 of 2021. Sales in Q3 stood at KRW 4.4419 trillion, up 2.1% Q-o-Q. However, with regards to the operating profit, profitability declined because of the increased cracker capacity coming online in the Asian region, so that the OP posted KRW 288.3 billion, and operating income ratio for 6.5%. The EBITDA stood at KRW 498.2 billion, which was 11.2% of the sales. On the next page, let me explain to you the financial highlights. As of the end of Q3 2021, assets stood at KRW 22.0246 trillion on a YTD basis. It is up KRW 2.6381 trillion, and cash and cash equivalent assets close to KRW 4.2746 trillion, up KRW 537.5 billion compared to the year-end of last year. That increased KRW 903.8 billion to be KRW 6.578 trillion. Borrowings came to KRW 3.3931 trillion. Capital is KRW 15.4466 trillion, up KRW 1.7342 trillion as of the end of 2020. Next is on business results and outlook by business division. First, on Page 6, the Olefin division. In Q3 of 2021, the Basic Chemical Olefin Division sales reached KRW 2.1326 trillion. Operating profit was KRW 148.9 billion, and operating profit ratio stood at 7.0%. On a Q-o-Q basis, production and sales volume grew and sales increased but with the rise in naphtha prices and new cracker installations coming online has resulted in intensified competition in major products, including HDPE and PP so that profitability has declined significantly over the previous quarter. Next is on the outlook for Q4. Because of the continued rise in oil prices, the feedstock cost and the new capacity volumes hitting the market is expected to continue to weigh down on the company's performance to the year-end. However, owing to recent power shortage in China, some of the country's petrochemical facilities have been declining operation rate so that we expect to benefit from the situation in terms of tighter supply. Also with growing COVID-19 vaccination rates and the shift to [ with-corona ] policy, it is expected to lead to more outdoor activities and expansion in the construction sector, leading to greater demand as well. Next is the Aromatics division. The sales of the Aromatics division is KRW 602.4 billion. Operating profit is KRW 11.9 billion, and operating margin is 2.0%. Demand for the products is solid and sales have increased, but in the case of the PET products, because of rapid rises in the feedstock price, there has been some adjustment to profitability. Also in the case of the PIA products, as the competitor's new capacity volumes [ start to hit ], the market profitability has fallen steeply. Now let me touch upon the outlook for Q4. With the onset of colder weather, the demand for SMB containers is expected to decline modestly. But due to the power shortage in China, PET and PIA products facility operation rate has been temporarily adjusted so that the market situation in the Asian region is expected to improve compared to the third quarter. However, in the case of our company, starting from October for about 40 days, the entire production line in Ulsan plant, including the [ PXE ] schedule for PTA and the opportunity cost for this, will be reflected in Q4. Next, on to our Advanced Materials business division. In the third quarter, LAM recorded revenue of KRW 1.256 trillion, operating profit of KRW 76.5 billion and operating margin of 6.1%. The increase in sales was driven by strong ASP trends, but the ongoing supply shortage in semiconductors resulted in weakness across key downstream verticals such as mobility, IT and home appliance, leading to a broad-based contraction in demand from the previous quarter. Profitability declined mostly in commodity PC products in particular due to mounting cost pressure from very strong upward trends in BPA pricing. Advanced Materials division, which does a significant portion of exports to offshore markets, saw rising transport costs due to constraints in global logistics. In terms of our outlook for the fourth quarter, we expect a temporary drop in downstream end-user demand due to the end-of-the-year inventory adjustment by customers, the ongoing global logistics challenge as well as the power shortage in China. As a result, we believe weak profitability trends are likely to continue. Also, their scheduled maintenance work starting in November, including 45 days for the PC plant, 15 days for the ABS plant, and we'll be booking the opportunity loss as a onetime expense. Next, let me move on to LC Titan's performance. Revenue was KRW 619.9 billion, and KRW 27 billion in operating profits were posted with an OP margin of 4.4%. There was a decline in both top line revenue and profitability. The scheduled maintenance and shutdown led to a drop in production volume and a strong travel restrictions were enforced across Southeast Asia due to resurgence in COVID-19, capacity utilization dropped sharply across many downstream verticals. ASP declined due to constrained demand despite the continued rise in commodity prices, resulting in a big drop in profitability versus the previous quarter. For our fourth quarter outlook, we do expect a slight recovery from the third quarter onward as COVID-19 controls are eased while the expansion of vaccine deployment across Southeast Asia. Also on the supply side, we believe that our main products may see a knock-on benefit from the Chinese power shortage issue. Lastly, let me take you through our LC USA results. Third quarter revenue recorded KRW 152.5 billion, operating profit KRW 41.8 billion, achieving operating margin of 27.4%, carrying forward strong upside momentum from the first half of the year. Ethane prices saw a turnaround to strength after many LPG plants experienced hurricane damage, while MEG ASP increased due to solid demand results seen in revenue growth and also Q-on-Q increase in operating profit in absolute dollar amount terms. In the fourth quarter, due to the seasonal rise in demand for LPG in the winter season, we do expect ethane prices to remain strong. But as demand improves for MEG products and the rise in absolute ASP continues, we expect the business to deliver solid performance driven by strong underlying cost competitiveness. As said, we do have about 40 days of scheduled maintenance planned for MEG, so we expect to book the opportunity loss as a one-off expense. Next on to Page 11 for our major investment plans and a progress update. First is our new HPC projects. Here, we will be not only using naphtha, but oil residue as feedstock to build a multi-feed cracker plant. We have achieved mechanical completion to date and have entered the pilot production phase. Once complete, the JV plant will allow us to utilize a more competitive raw material mix, achieving greater cost competitiveness relative to an NCC center of an equivalent scale. We'll be able to respond preemptively to increasing demand for eco-friendly products. And the plant's product capacity of up to 108,000 tons of EVA materials used in photovoltaic panels will be another strength. The project will ramp up production starting the first half of next year and will be reflected in our financials based on equity method accounting. Now the LINE project is a co-investment with LC Titan, one of our major subsidiaries. It is a 1 million ton ethylene production project in Indonesia that will include a new NCC. We have previously confirmed the final investment amount and product portfolio on October 21 and communicated as such via a disclosure filing. This is a project we started looking at and have been pursuing since 2017, and it will allow us to achieve vertical integration between our existing PE plant and also the raw material production side helping deliver greater profitability for LC Titan. We'll also be able to localize production within the biggest growth market of petrochem, which is Southeast Asia, to expand and solidify our market dominance. The final investment amount is $3.9 billion, which is slightly smaller than our previous communication, and we're targeting mechanical completion by the first half of 2025. Please refer to the slides for other planned investments. This is our final slide, and let me update you on the latest status of our hydrogen initiative. At our last second quarter conference call, we shared the goal for 2030 hydrogen business initiative and walked you through our mid- to long-term strategy. As stated, our goal is to achieve KRW 3 trillion in revenue by 2030 by producing 600,000 tons of blue and green hydrogen. We already have 30,000 tons of hydrogen production. But in order to achieve this business road map, we must secure more sources of green hydrogen. Given the relatively high cost of new renewable energy in Korea, it may be very challenging to produce green hydrogen out of Korea that is competitive if we do it ourselves. That's why from the beginning, we have been examining a value chain model where green hydrogen can be produced at an overseas production site where using renewable energy is more accessible and then transporting the green hydrogen into Korea for domestic distribution in the form of ammonia. So we have been looking at Malaysia as our possible production site for green ammonia. We have entered into a hydrogen consortium and are currently in talks with our partners, including the Sarawak state government, Samsung Engineering and POSCO, about project site location and sourcing of renewable energy. We will inform you of further details such as the final investment amount and capacity once finalized. And then we are also examining other possible projects for hydrogen production outside of Malaysia as well, and we will keep you updated on other hydrogen-related initiatives as they move along. So this concludes today's presentation on third quarter results and fourth quarter outlook. I will now hand the call over to [ Mr. Yong-Seok Kim ], EVP of the ESG Strategy Group, to take us through a business outlook update for 2022.

Yes, greetings. This is [ Yong-Seok Kim ], EVP for the ESG Strategy Group at Lotte Chem. In the third quarter, we saw a ramp-up in capacity expansion with many new cracker plants set up across Asia. We also saw a full-scale capacity utilization among downstream end users. The added capacity together with the shortage in container ships had the effect of constraining offshore exports of polymer products, fueling more intense competition within the Asian region than expected. The Southeast Asia market, which is home to our LC Titan operations, saw a severe contraction in demand as another serious COVID wave hit the region. As a result, our financial results marked a slight decline compared to the first half across all business segments with the exception of our U.S. business. Despite the challenging conditions, however, we nonetheless achieved a significant increase in production and sales volume particularly of high value-added products, including PE products used in separators and EVA products, especially in high-margin markets of the U.S. and Europe. Advanced Materials business increased, compounding product production volume and sales by more than 90%. The LC USA business also achieved solid results, thanks to underlying cost competitiveness. Despite the strong efforts, however, we still face many externalities such as the continued rise in oil prices, logistics bottleneck and semiconductor chip shortage. And I understand that this may be a source of concern for many market stakeholders, and you may be quite concerned about prospects for the petrochem industry. That said, I would like to briefly share with you our industry outlook for 2022 and walk you through our perspective. On the raw material side, due to recent moves to phase out an exit call, new investments into fossil fuels has been decreasing, making any immediate supply more difficult versus the past. In the short term, the situation was compounded by Hurricane Ida, which led to a setback in production in North America, triggering a rise in oil prices starting July. These rising oil price trends are expected to continue into the first quarter of next year due to strong seasonal demand for heating. However, we expect prices to start stabilizing starting from Q2 as more production comes back online, and supply and demand dynamics balance out. On the supply front, there was a rush of new capacity expansion at new naphtha crackers towards the end of the second quarter with a huge amount of new capacity flowing into the market this year, well above and in excess of any incremental increase in demand. This added supply is likely to continue to weigh on the market into next year. However, since new capacity add-ons for many product categories is expected to be much less in 2022 versus this year, we believe that the additional capacity will start to be absorbed by the market at a certain level. In terms of demand, we expect a broad-based recovery as vaccination rates increase worldwide and more economies transition to live with COVID mode. Demand may pick up, particularly in the textile, automotive and industrial sectors. So on balance, for 2022, while we do expect competition to become more intense amid challenging circumstances and conditions, we intend to move ahead according to schedule to strengthen the competitiveness of our existing businesses by expanding into new eco-friendly business areas. In terms of our existing business segments, we will focus on boosting sales of materials used in battery and photovoltaic applications while fostering strategic vendor partnerships to generate stable revenue streams. As part of our eco-friendly business, we are also set to enter pre-marketing production for chemically recycled PET products. As a company, we are committed not only to our short-term strategy but also to our mid- to longer-term strategic goal to strengthen the competitiveness of our existing business portfolio while fostering new businesses. First, in terms of our existing petrochem business, we seek stable supply of competitive raw material feedstock while further diversifying our product portfolio. We are now on track to successfully complete our first joint cracker project, our HPC project with an oil refinery partner by the end of this year. And we will then be moving on to the LINE project in Indonesia as our next point of focus. In the case of the LINE project, as we explained before, it is quite meaningful in many ways. It will help us strengthen LC Titan's competitiveness while gaining a preemptive head start in the Indonesian local market, but it's also very important because it's about keeping our promise to Titan shareholders. Earlier in 2017, we already undertook an IPO for LC Titan with the express purpose of pursuing this project and now are setting out to honor our commitment to shareholders by executing this project successfully. Second, in order to foster a new lineup of new eco-friendly businesses, we have defined 4 focus areas: first, recycling of plastic for gas production; second, EV material application; third, hydrogen production; and fourth, other eco-friendly safe materials. Relevant parts of our organization are working together to pursue each of these green business initiatives. In particular, we have been stepping up momentum on the hydrogen business initiative in all parts of the value chain. As mentioned before, we actually were the first company in Korea to form and crystallize a plan for clean production of hydrogen outside of Korea. And we are also in talks with SK Gas and Air Liquide on setting up a JV for distribution with negotiations proceeding smoothly. And the hydrogen tank production project is also in the pilot plant construction phase. Going forward, as always, we remain committed to doing our best to scale and grow our existing business while promoting future growth drivers to enhance our overall corporate value. Lastly, before concluding today's conference call, I am pleased to inform you that we have adopted, starting from this conference call, a new audio webcasting system. And so going forward, we will be using the webcasting system, which we expect will allow more shareholders and relevant stakeholders to join in, in our conference call session. Amid heightened uncertainty around the equity market and the petrochem industry, members of management are very well aware of the deep concerns held by our shareholders about our business prospects going forward. In fact, we have been forwarding all comments and feedback from our individual and minority shareholders through our IR team. While we do realize that our shareholder return policies may still not be fully up to your full expectations, nonetheless, we have been working very hard. In 2017, we revised our dividend policy to boost our payout ratio from what was a very low 10% up to 30%. And as a matter of fact, for last year, despite the difficult business cycle and environment, we actually returned more than 100% of net profit back to our shareholders in the form of dividends. Also early last year, we did create a new dedicated IR team to engage more proactively with market players. And furthermore, this year, we have set up on and off-line communication channels on our website or via ARS so that you could forward your comments or questions to us more easily. We will stay ever attentive to your valuable input and feedback, and we will do our very best as a company to live up to the full expectations of our shareholders. Thank you very much.

[Interpreted] Now Q&A session will begin. [Operator Instructions] The first question will be presented by Young-chan Baek from KB Securities.

[Interpreted] I have 2 questions actually. So starting from the month of September, the power shortage issue broke out in China. And because of this issue, it has led to differentiation of prices in terms of the chemical products. So where does LC or Lotte Chemicals stand in terms of the prices of the chemical products? And my second question has to do with gas. With the rise of the gas prices, we expect that the same prices will also rise going forward next year as well. So how will this impact the performance of your American units? And what is your outlook for the same process -- the same prices going forward?

[Interpreted] My name is [ Kim Yok-Kim ]. I am the director of the Olefin division. Let me touch upon the question about the coal issue in China. So because of the rise of the natural gas prices as well as the rise of the coal prices, there is issues about the power shortages as well as the operation rates of the plants there. If you look at the share of CTO and MTO in the representative products in China, ethylene comes to 19%; MEG, 40%; and for PEPP, it's from 20% to 25%. So this operation rate issue, we believe, is positive factor that will hold up the prices of our products. So looking forward to the year 2020 (sic) [ 2022 ], there -- I think we have to wait and see how the situation changes after the winter season and also what happens after the Winter Olympics. And also there are geopolitical factors that are involved. But at least the present, we believe that up until at least Q1 and for the first half, all these factors will serve as positive factors that hold up the prices of our products. In the case of the ethane in the United States, in the case of Q3, the rise of the natural gas and also the impact from the hurricane and other factors have led to strong prices. And also for Q4, we believe that natural gas prices will continue to soar because of the demand in the winter season. And also because many of the new crackers will come online, this will lead to higher prices as well. However, there is the ethane rejection volume of 10 million tons, and they will come to the market. And so because of this, there will be limitations in the rising prices. And also, when it comes to the profitability of the LC USA, oil prices, crude oil prices as well as the coal prices are rising simultaneously. And because of the cost pushback effect of the MEG, despite the rise in the feedstock prices, we believe that profitability will be maintained at a solid level.

[Interpreted] The next question will be presented by [ Je San Yun ] from Hana Financial Investment.

[Interpreted] I have 2 questions. So if you look at this quarter compared to your peers, your performance was rather weaker. Is there any one-off factors or special factors that have affected such lower performance? And when it comes to the ABS division, the Advanced Materials division, in the past, when prices have gone up, even then Lotte Chemicals was rather slow in improving its performance. So I can't really understand why this is happening, especially you see a deterioration of your performance further compared to your peers in Q3. So can you elaborate on this issue? And my second question has to do with dividends. So if you look at the Asian PE companies and global companies, their payout ratio stands at 50%, and some of them are engaged in treasury buyback as well. So you said that your [ dividend payout ratio ] is [ 30% ] based on unconsolidated basis. Is there any plans to have maintained this level on a consolidated basis? Or is there any plans to raising your dividend payout ratio? Is such discussions under way internally? If so, can you share this information?

[Interpreted] So my name is [ Yong-Seok Kim ]. I am the EVP of ESG Strategy Group. So there was a question about whether there was any one-off or special factors in this quarter. Well, in the case of this quarter compared to last quarter, there wasn't any special one-off or special factors. The reason why the performance of our company in Q3 was rather lower than the market expectation was because in Q3, as has been previously explained, naphtha and other such feedstock prices have risen steeply. However, the sales price of our products have not risen as steeply. And then there was large-scale new capacity additions that came on to the market. And so the basic reason is that our sales price have not been able to catch up in terms of increases compared to the rise of the feedstock price increases. And this has led to a significant decrease in the spread of PE and PP products. In addition to such reasons, in the case of our subsidiary, the LC Titan, because of the strong resurgence of the COVID-19 pandemic in the Southeast Asian countries, a very strict lockdown measures have been implemented. And so this has affected the operation rate of the downstream product plants, and this has had an adverse impact in demand as well. As we have mentioned repeatedly, in order to enhance shareholder value, we have set as our dividend payout policy, 30% payout ratio. And we have made continuous efforts to increase our dividend. However, with regards to the recent price trends of our stocks, we do -- we are aware about the concerns that are held by our shareholders, and we will make further efforts in order to meet your expectations going forward. So through what means we can further strengthen the shareholder return value is something that requires internal discussions, and so I cannot say anything definitive in this place and time. Please understand this. And if there is any further information to share with you, we will make disclosures or communicate through our IR team. Yes, once again, I would like to apologize on behalf of the senior management about the fact that the price trends of our stocks have not been able to meet your expectations.

[Interpreted] [ I am Mac Son Phong ], the Director of Advanced Materials Strategy Management Division. So I'm going to answer the question about the ABS that you have asked about. So in the case of commoditized products, depending on the market situation, the profitability would fluctuate quite widely when it comes to the commoditized products. So that is the situation of our competitors. They're dealing mostly with commodified products, whereas in the case of Lotte Chemicals, we focus on specialty products. And we don't react very flexibly depending on the market situation. So in Q3 as well, because of the supply and demand situation, the tight supply situation and the profitability of commoditized products has temporarily been strengthened. And so on a relative basis, Lotte Chemicals appeared as if our profitability was lower than our competitors'. That is all.

[Interpreted] The next question will be presented by Hyunryul Cho from Samsung Securities.

[Interpreted] So I have 2 questions. It looks as if you have decided to move ahead with the LINE project. And if you look at the CapEx of this project, compared to the HPC project, it looks quite large. And even compared with your initial CapEx plans, the current CapEx figures that you are citing, it seems to be larger. So is there any reason why you're investing more heavily in Indonesia compared to Korea? Or are there any special products that you plan on installing for the downstream side? And my second question has to do with 2022 for Olefin, Aromatics and the Advanced Materials. Going forward, it doesn't look as if there are many opportunities that will allow for improved supply and demand situation. So from your internal perspective, do you find any products that will see better supply and demand prospects going forward?

[Interpreted] I am [ Tony Lin ]. I'm the EVP of Business Development Division. First with regards to the CapEx of the LINE project as compared to the HPC project. You said in the case of the LINE project, in terms of the number of plants and in terms of the capacity, the amount of investment seems rather large. So let me give you rather a more concrete explanation about this. In the case of the HPC project, our JV partner, Hyundai Oil Bank, when it comes to the utilities as well as other areas, we are being serviced in terms of the CapEx by Hyundai Oil Bank. But in the case of the LINE project, when it comes to the [ JT ] for the raw materials and the products and also for the utility as well as the plant side, it's something that we have to do alone. We have to purchase or we have to construct it on our own. And so that's the reason why it appears that for the LINE project, the CapEx appears larger in terms of the composition of the plant as well as the capacity. That is all.

[Interpreted] So I am [ Khan Shi Ko ]. I am the EVP of Monomer Division as you have noted. Yes, following on from 2021, in 2022 as well, in terms of ethylene, following up from the 17 million tons of capacity that was added in 2021, 8 million tons more of capacity is being planned for 2002 (sic) [ 2022 ] as well. So yes, this will be weighing down, we believe, on the market situation of the petrochemical industry. However, we don't believe it is appropriate to decide outright that the outlook for next year that it will be a weak market because there are many other factors that will determine the market situation aside from the supply. There can be greater demand that offsets the growth in supply, or there can be factors that damage the ability to supply volumes into the market. So in the case of 2020, you compare it to 2021, the amount of capacity addition that is scheduled is significantly lower. And so rather than saying that 2022 looks to be a weak market based on the capacity addition, I think we have to focus on other factors that may affect the market situation. So the demand in the petrochemical industry as has been analyzed by many analysts is being affected by the improving vaccination rates as well as the reopening policies of many countries and the stimulus packages that are being implemented across the world. So demand in the petrochemical market is increasing exponentially, but this has not been well recognized by the industry itself. And it's very slow to move forward. And there are many factors behind that. There is the maritime logistics issue, the supply chain bottlenecks as well as the energy or power shortage issues in China, coupled with the automotive semiconductor shortage issues. In the case of the supply chain bottleneck, this is a negative factor for Lotte Chemicals. However, the dominant view is that as time passes, the situation will improve for sure. In the case of the Chinese electricity shortage issue, this is a positive factor for Lotte Chemicals, and we believe that the situation will last for the time being. So for the market situation of the petrochemical industry, we believe it will be at least similar in 2022 compared to 2021. And if the supply chain bottleneck issue is resolved at an earlier point in time than is predicted, then actually better performances can be expected in 2022 over the previous year. In the case of Lotte Chemicals, though, we are focusing on the high value-added PP products and so these EVA and other specialty products will be further rolled out. And also because of the improving infrastructure market in the world going forward, the EOA construction materials, we believe, has better prospect going forward. And the BD will also benefit from the resolution of the semiconductor shortages for the automotive sector as well. And also the energy is set to benefit from the Chinese electricity shortage issue as well as the [ PIAA ]. So we believe these are the products that will lead improving performances for our company going forward in 2022.

[Interpreted] The next question will be presented by Woo Ho Noh from Meritz Securities.

[Interpreted] I have a question about the hydrogen business. You have presented your vision about the hydrogen business previously. And by including a presentation slide for this earnings release, I think the picture has become much clearer. So I have a question about your Malaysia Sarawak green hydrogen project. So there are actually other global companies that have -- before Lotte Chemicals announced their water electrolysis vision and hydrogen product-related plans. And if you look at their data that was released, they claim that the cost for the water electrolysis will be $1.5 to $1.8. Would the cost for water electrolysis be similar to -- for Lotte Chemicals as well? And also my second question has to do with one of your JV partners, POSCO. So can you differentiate between POSCO and yourself in terms of the business areas that you will be involved in, the project areas that you'll be involved in? And my third question has to do with ammonia, which I believe will serve as the transportation vehicle for the hydrogen that is produced. In terms of utilizing this ammonia, I think there might be some conflict with your other subsidiaries about this. So what is the competitiveness that Lotte Chemicals has in terms of the ammonia? And how far have you progressed in terms of the ammonia decomposition technology?

[Interpreted] In the month of July, Lotte Chemicals has announced its road map for the hydrogen business, and we have as our target the year 2030 by which we will be producing 600,000 tons of clean hydrogen. And we have announced that we will be responsible for 30% of the domestic demand for hydrogen by then. Internally, at Lotte Chemicals, we are producing 70,000 tons of byproduct hydrogen already. And from that, 30,000 tons is being sold outside. And -- however, given the domestic environment situation, it is difficult for us to engage in large-scale hydrogen production. And so partnering with capable companies that have competitiveness in the hydrogen business area, we are seeking to produce hydrogen overseas. In the case of this project that is located in Sarawak of Malaysia, we plan to leverage the abundant natural gas resources as well as the hydropower resources that are there to be found in Sarawak region. So this project aims to produce green hydrogen using these resources. But the most important factor for this project is, as you've mentioned, the cost of the water electrolysis. This cost of the renewable energy will determine the economics of this project. So with the SEDC, which is the [ state economic ] corporation of Sarawak and with POSCO and with Samsung Engineering, we have cooperated to undertake the prefeasibilities that you would have already been completed, and we are currently going forward with the feasibility study. So during the prefeasibility study as well as the feasibility study that is currently under way, with regards to cost of the water electrolysis, we have received the water electrolysis related resources at a price that has not been finalized yet. So it is something that is still under discussion and consultation. So at the present stage, we have not yet determined clearly what the cost of water electrolysis will be. As I said, we are currently under negotiations. But we do believe it will be possible to secure such resources at a price that is competitive. And you also asked a question about how POSCO and Lotte Chemicals is differentiated in terms of the business areas that they will be respectively involved in. So if you look at what has been discussed up until now, well, the difference is not that definitive. At the present stage, in the case of Lotte Chemicals when it comes to ammonia because we have a lot of fine chemical that has ammonia business, I think our Lotte Chemicals would have a bigger role to play in this area. But the discussions have not progressed up until that stage yet. With regards to the question about the utilization of ammonia, well, I'm not sure it will be appropriate for me to speak on a topic that involves another company. But when it comes to utilizing ammonia, given the announcements that have come forward from the Korean government, it would seem that by 2030, ammonia usage will be greatly expanded. So I do believe that there will be a division of roles as well as a cooperative relationship with our subsidiary in terms of the ammonia business. But as of yet, nothing has been decided. So in order to minimize any market conclusions that might arise because of this case, we will, as soon as possible, clarify these issues and communicate that information with the market.

[Interpreted] Because of the time constraint, at this point, we would like to wrap up the 2021 Q3 Lotte Chemicals Earnings Release Conference Call. So we'd like to thank everyone for taking part in today's conference call, and we will see you during the next quarter. Thank you very much. If you have any further questions, please contact our IR team, and we will provide the answers to [ the best of our ability ]. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]