[Click eStock] Lotte Jeongmil Chemical Adds Growth Potential Alongside Safety and Profitability

[Asia Economy Reporter Lee Seon-ae] Dongwook Lee, a researcher at Kiwoom Securities, stated on the 11th that Lotte Fine Chemical has secured growth potential, maintaining a 'Buy' investment opinion and a target price of 110,000 KRW.

First, the performance of the chlorine series is on an improving trend. The regional caustic soda price, which was below $200 per ton, has risen to around $330?360. This is because the regular maintenance of PVC and electrolyzer facilities in the region (Korea, Japan, Taiwan, China, etc.) and the reduction of exports from China have partially resolved the oversupply, and demand is rebounding in Australia and Indonesia, mainly for alumina smelting. The ECH spread is also rising significantly. This is due to increased demand for paints in construction and shipbuilding, improving the supply and demand of front-end epoxy resins, which in turn increases ECH demand.

Ammonia prices have surged in India, China, the Black Sea region, and the Middle East, causing domestic import prices to rise accordingly. The domestic ammonia import price in May was $525 per ton, a 117.3% increase compared to the same period last year. Amid regular maintenance and production disruptions at some plants, strong nitrogen demand in North America, improved agricultural economies in India and Brazil, and a decrease in global grain stocks have led to a sharp increase in urea fertilizer demand. Although Lotte Fine Chemical does not currently manufacture ammonia directly, it is the number one domestic ammonia distributor, holding about 60?70% of the domestic distribution volume.

Long-term growth potential has also been secured through the adoption of new growth engines. Dongwook Lee of Kiwoom Securities said, "Chemical industry companies, due to the cyclical nature of the industry, may experience periods of unfair valuation if they do not possess new growth engines that can offset negative investor sentiment during downturns, even if they record record-breaking performance." He added, "Lotte Fine Chemical is expanding investments in new growth engines to eliminate such risks." First, the core business, the green materials sector, is expanding production capacity and cooperation and R&D with group food affiliates to respond to the rapid growth of pharmaceutical coatings and the alternative meat market. Sales related to alternative meat are expected to increase significantly from the second half of next year.

Additionally, the company is expanding its entry into the high-growth hydrogen industry. It has signed an MOU for a green ammonia maritime transport and bunkering consortium with Korea Shipbuilding & Offshore Engineering, HMM, POSCO, and Lotte Global Logistics. The researcher stated, "Lotte Fine Chemical is expected to be responsible for the transportation and fueling of green ammonia for ships." He emphasized, "Also, Lotte INEOS Chemical, an equity-method affiliate, is currently undertaking a project to switch raw materials from LSFO to LNG, which will double the existing by-product hydrogen upon raw material conversion. This is expected to expand external sales and application businesses such as fuel cells for power generation."