[Click eStock] "Lotte Chemical, Rebound Expected Starting Q4"

Lotte Chemical Falls 10.69% This Month Amid Rising Oil Prices and Increasing Supply
Kiwoom Securities "Maintains Lotte Chemical Target Price at 340,000 Won"

[Asia Economy Reporter Gong Byung-sun] Recently, Lotte Chemical's stock price has been sluggish due to rising raw material costs and increased supply. However, starting from the fourth quarter of this year, cost burdens are expected to ease, and with a rebound in product prices, both stock price and performance are anticipated to improve.

According to Kiwoom Securities on the 30th, Lotte Chemical's closing price the previous day was 200,500 KRW, near its 52-week low. Since the beginning of this month, Lotte Chemical has fallen by 10.69%, showing continued weakness.

The rise in oil prices and increased supply are interpreted as negative factors. As oil prices rose, the price of naphtha, a major raw material, surged sharply. Additionally, since the first half of this year, US crackers that had production disruptions due to cold waves have resumed operations, increasing supply. Expansion of crackers in the region, including Korea and China, has also come online, causing margins on Lotte Chemical's main products to decline. Meanwhile, logistics disruptions have limited the release of arbitrage volumes both domestically and internationally.

Nevertheless, Kiwoom Securities maintained a 'Buy' investment rating and a target price of 340,000 KRW for Lotte Chemical. This is because a rebound in performance and stock price is expected starting from the fourth quarter. With expanded crude oil production capacity in North America and Iran, oil prices are forecasted to decline from the second quarter of next year. This will lead to a drop in naphtha prices. Furthermore, as logistics disruptions ease, prices of regional general-purpose chemical products, which had been undervalued compared to the US and Europe, are also expected to rebound.

Researcher Lee Dong-wook of Kiwoom Securities explained, "If demand for petrochemical products increases alongside higher vaccine penetration rates in developing countries and the development of oral COVID-19 treatments, regional supply oversupply will be alleviated."

Future growth engines are also being prepared. By 2030, Lotte Chemical plans to invest 4.4 trillion KRW in the hydrogen business. To operate domestic hydrogen charging stations, power generation projects, and hydrogen refueling businesses, a joint venture (JV) will be established in the first half of next year with SK Gas and Air Liquide. The high-growth hydrogen tank business will secure dry winding technology capable of lightweight and mass production of hydrogen tanks and establish a production system for Type 4 hydrogen tanks. It is expected that a pilot production facility will be built on the Lotte Aluminium Incheon site in the first half of next year, and international certification will be obtained.