Lotte Chemical Stretches Out as Negative Factors Pressing on Performance Disappear

[Asia Economy Reporter Eunmo Koo] Lotte Chemical's stock price is gaining momentum as the negative factors that had caused poor performance are being resolved.

According to the Korea Exchange on the 2nd, Lotte Chemical's stock price rose 18.6% over the past month. This is a remarkable record compared to the KOSPI, which experienced a 2.6% decline during the same period. On the 26th of last month, the stock price even reached a new high of 254,500 KRW during intraday trading. Institutional investors led the rise in Lotte Chemical's stock price in October, net buying shares worth 251.6 billion KRW over the month. Lotte Chemical was also the most net-bought stock by institutional investors last month.

The reason Lotte Chemical's previously stagnant stock price is now rebounding is due to expectations of improved supply and demand for ethylene, which influences both the stock price and performance of Lotte Chemical. The naphtha cracking center (NCC) and ethane cracking center (ECC), which produce ethylene and its derivatives, are Lotte Chemical's core facilities. Although ethylene demand was initially expected to decline due to COVID-19, it has actually shown a stable upward trend.

Lee Doyeon, a researcher at Korea Investment & Securities, explained, “After the economy sharply cooled and then rebounded, and as oil prices began to escape from low levels, actual demand improvement triggered pre-purchasing activities, resulting in ethylene demand growth rates exceeding the real gross domestic product (GDP) growth rate.”

The imminent restart of the Daesan plant in Chungnam is also raising expectations for future performance. One reason Lotte Chemical's performance was relatively weak among petrochemical companies this year was the fire accident at the Daesan NCC facility in March. The Daesan plant is scheduled to complete reconstruction in the fourth quarter, obtain various permits, and resume operations within the year. Hwang Yusik, a researcher at NH Investment & Securities, predicted, “Once commercial operations begin, performance will rebound,” adding, “Insurance claims for reconstruction costs and business opportunity losses related to the accident will be finalized by the first half of next year.”

With the negative factors that had suppressed performance being resolved, the pace of profit growth is expected to accelerate from the fourth quarter. According to financial information provider FnGuide, Lotte Chemical's operating profit for the fourth quarter of this year is estimated at 168.2 billion KRW, a 14.3% increase compared to the same period last year. Operating profit next year is also expected to recover to the 1 trillion KRW level, increasing by 319.6% to 1.0068 trillion KRW compared to this year.