Lotte Chemical Recovers to 300,000 KRW Range After 2 Years

[Asia Economy Reporter Koh Hyung-kwang] Lotte Chemical's stock price has recently surged sharply, recovering to the 300,000 KRW level for the first time in two years. This reflects expectations of significant earnings improvement this year as demand for chemical products rebounds, centered on China, due to the global economic recovery.

According to the Korea Exchange on the 14th, Lotte Chemical was trading at 311,000 KRW on the KOSPI market as of 9:40 a.m., up 0.6% from the previous trading day. This is the highest level since March 4, 2019 (313,000 KRW). The stock price even reached 326,000 KRW during the previous day’s session, marking a 52-week high.

Lotte Chemical’s stock price has risen more than 20% over the past three weeks since the 23rd of last month. Compared to the price three months ago (221,500 KRW), the increase is about 40%. Its market capitalization recovered to 10 trillion KRW (10.5911 trillion KRW based on the previous day’s closing price), ranking 33rd on the KOSPI. Over the past three weeks, institutional investors and foreigners have driven the stock price up by net buying 71.7 billion KRW and 8.6 billion KRW worth of Lotte Chemical shares, respectively.

The influx of 'big players' buying Lotte Chemical shares is underpinned by expectations of future earnings improvement. According to financial information provider FnGuide, the consensus operating profit estimate for Lotte Chemical in 2021 (average of securities firms’ forecasts) is 1.3448 trillion KRW. This is a 43% increase from the estimate three months ago (940.8 billion KRW). If earnings meet this estimate, the year-on-year growth rate would reach 270%.

Lotte Chemical’s earnings improvement this year is supported by the restart of the Daesan ethylene (NCC) plant, recovery in demand for the fiber chain, and continued strong performance in advanced materials. Particularly positive is the growing possibility of a market rebound in the fiber chain, which had been sluggish last year among major chemical product groups. Park Il-seon, a researcher at KTB Investment & Securities, said, “Price increases in the fiber raw material chain, including paraxylene (PX), high-purity terephthalic acid (PTA), and monoethylene glycol (MEG), will significantly contribute to Lotte Chemical’s earnings normalization. The improvement in olefin operating profit due to the Daesan plant restart is also worth expecting.”

There is also anticipation of a windfall benefit from the recent sharp rise in coal prices in China. Lee Dong-wook, a researcher at Kiwoom Securities, stated, “China’s coal price at the beginning of January was 782 yuan per ton, about a 70% increase from last year’s low. The rise in Chinese coal prices improves the economics of integrated steam cracker facilities, expands concerns over CTMEG quality, and reflects the positive impact of the Yeosu EOA (ethylene oxide derivatives) expansion, so earnings improvement is expected this year compared to last year.”