Petrochemical Stocks Also 'Buzzing' Amid COVID-19 Vaccine Optimism

Pre-Pandemic Stock Recovery... Full Earnings Recovery Expected Next Year
Key Factors: COVID-19 End Timing and Economic Recovery Speed

[Asia Economy Reporter Minwoo Lee] Expectations for the development of a novel coronavirus infection (COVID-19) vaccine are also impacting petrochemical stocks. As the economy recovers, demand for petrochemical products, which had been sluggish, is also reviving, leading to forecasts of a full-scale earnings recovery starting next year.

According to the Korea Exchange on the 18th, the stock price of S-Oil closed at 66,600 KRW the previous day. Compared to the 2nd of this month, it has risen steadily by 21.1%, showing an upward trend throughout the month. The announcement of progress in COVID-19 vaccine development by U.S. pharmaceutical companies Pfizer and Moderna has raised expectations for economic recovery, which is interpreted as increasing optimism about crude oil demand.

Unlike this year, which was a 'dark period' marked by consecutive losses from the 1st to the 3rd quarter, it is expected that full-scale earnings recovery will begin next year. Samsung Securities forecast that S-Oil will achieve an operating profit of 713 billion KRW next year, successfully turning profitable. As COVID-19 vaccines begin to be commercialized, demand for transportation fuels is recovering, allowing the company to escape from refining margins below the break-even point and enter a path of earnings improvement.

SK Innovation has also recovered its stock price to the level seen at the end of last year. On the 9th, when Pfizer announced its COVID-19 vaccine, the stock surged about 11% in one day. The stock price, which was in the 110,000 KRW range earlier this month, rose to 160,000 KRW the previous day and is currently taking a breather with a slight decline in early trading today. According to financial information provider FnGuide, the market consensus for next year's performance is sales of 39.7682 trillion KRW and operating profit of 754.6 billion KRW. Sales are expected to increase by 11.27%, and operating profit is projected to turn positive. This is attributed to the recovery of transportation demand due to rising international oil prices and vaccine distribution, along with added expectations for the secondary battery business.

The growth trend in the chemical industry is even steeper. Lotte Chemical and Daehan Petrochemical have risen by 17% and 19.1%, respectively, since the beginning of this month. This marks a recovery to the stock price levels seen in May last year. The spread of COVID-19 has increased the importance of social distancing activities and hygiene, leading to a surge in demand for home appliances and hygiene products, which in turn increased demand for various chemical products used as raw materials, acting as a positive factor.

As COVID-19 vaccines continue to emerge and the economy recovers faster than expected, earnings improvements for petrochemical companies, which are sensitive to economic cycles, are also expected to follow. Hyunryul Cho, a researcher at Samsung Securities, said, "The refining sector, which suffered significant damage this year, will continue to recover toward the second half of next year," adding, "The chemical industry, which has large-scale facility expansions planned for next year, can offset the burden of these expansions with the recovery in product demand and improve earnings."

This content was produced with the assistance of AI translation services.