[Click eStock] "Lotte Jeongmil Chemical, Strong Price Surge of Key Products to Continue"

Kiwoom Securities Report

[Asia Economy Reporter Minji Lee] Kiwoom Securities maintained a buy rating and a target price of 125,000 KRW for Lotte Fine Chemical on the 18th. This is based on the analysis that the prices of key products such as ECH, ammonia, and caustic soda continue to show strong performance due to favorable demand and a tight supply environment.

Looking at the price of ECH, as of early this month, it was $3,447 per ton, marking a 65% increase compared to the same period last year. Despite some front-end demand slowdown caused by China's shutdowns, supply disruptions both inside and outside the region have continued, tightening supply and demand.

Researcher Dongwook Lee of Kiwoom Securities analyzed, “The large-scale maintenance by ECH companies in the US and Europe has reduced the availability of spot supply within the region due to a surge in demand outside the region, which has influenced the rise in export prices.” He added, “The economic viability of glycerin-based ECH remains inferior to propylene-based ECH due to Indonesia’s palm oil export ban and increased glycerin demand in Europe and the US.” Accordingly, despite a two-week regular maintenance in mid-April, the company’s ECH segment is expected to show improved performance compared to the previous quarter due to price and spread increases.

The import price of ammonia reached an all-time high of $1,110 per ton. This is due to the sharp rise in gas prices caused by the Russia-Ukraine war, which has reduced the operating rates of ammonia plants outside the region, while front-end fertilizer and industrial demand continue to grow. The combined ammonia production capacity of Russia and Ukraine is 26.32 million tons, accounting for nearly 12% of global production capacity. Researcher Namsu Lee stated, “With an annual ammonia distribution volume of about 900,000 tons, holding a 29% share in Northeast Asia and 66% domestically, the company is the leading ammonia trader in the region,” adding, “It will be the biggest beneficiary of the price surge.”

The price of caustic soda stood at $723 per ton, exceeding $700 again since December last year. Despite some demand slowdown in certain front-end industries due to China’s lockdown measures, offshore markets such as Europe and the US continue to experience tight supply due to production disruptions and increased electricity price volatility caused by the war. China is also facing logistics issues with chlorine-related byproducts, leading to reduced caustic soda production. Researcher Lee noted, “Some Japanese producers began regular maintenance from late May, which is also shrinking spot supply within the region,” emphasizing, “It is important to note that caustic soda maintains high profitability due to its byproduct characteristics.”