"Chemical Industry Recovery Expected to Become Visible from Next Year Due to Restructuring"

On September 18, Shinhan Investment Corp. assessed the chemical industry, stating, "While valuation declines and fundamental deterioration continue, recent restructuring efforts are meeting the conditions necessary for a rebound."

According to the report, the chemical industry has traditionally adopted a strategy of investing during downturns using profits earned during boom periods, in preparation for the next cycle. However, with high dependence on the Chinese market and China’s increasing self-sufficiency, this traditional strategy has reached its limits. Researchers Lee Jinmyung and Kim Myungjoo at Shinhan Investment Corp. analyzed, "Since the first half of 2021, the industry has entered a downcycle, facing a 'triple whammy' of high oil prices, sluggish demand, and oversupply simultaneously. This has increased the likelihood of restructuring within the sector."

Nevertheless, they evaluated the recent global restructuring, which is easing oversupply, as a positive signal. They explained, "Facility restructuring, mainly in Europe and Japan, is now spreading to Korea and China, the main culprits of oversupply, thereby fulfilling the conditions for a rebound."

They added, "While global ethylene capacity is expected to increase by 39.97 million tons by 2028, demand is projected to rise by only 24.83 million tons, suggesting a downward trend in operating rates. If the planned ethylene plant closures in Europe (3.59 million tons) and Asia (3.01 million tons) by 2028, as well as additional closures in Korea (up to 3.7 million tons) and China (estimated 6.1 million tons), are realized, the easing of oversupply could lead to a visible industry recovery starting next year."

Additionally, the U.S. Energy Information Administration (EIA) forecasts that next year’s international oil price (WTI) will reach $48 per barrel due to increased supply from the easing of OPEC+ production cuts. In contrast, U.S. natural gas prices are expected to rise to $4.3 per MMBtu, up from $3.5 in 2025, due to expanded LNG exports. The report stated, "This decline in oil prices and strength in natural gas will positively impact the cost competitiveness of domestic petrochemical companies compared to those using ethane crackers (ECC)."

The report also noted that while the trade conflict between the U.S. and China is unlikely to be resolved in the short term, any signs of easing tensions, such as through the fourth high-level meeting, could gradually restore subdued demand. China is pursuing strong fiscal and monetary stimulus measures to counter the tariff war and revive domestic demand, but recent economic indicators have fallen short of market expectations over the past two months due to the sluggish real estate market. As a result, economic downturn may persist in the short term; however, continued stimulus measures could spark stock price momentum by the end of the year.

Accordingly, Shinhan Investment Corp. recommended an investment strategy focused on industry rebound and normalization of valuations, selecting LG Chem, Lotte Chemical, and Lotte Fine Chemical as its top picks. LG Chem is expected to benefit from restructuring and a chemical turnaround, with attention on the anticipated rebound in its cathode materials business in 2026, expansion of new clients, and the alleviation of discounts through the use of its stake in LG Energy Solution. Lotte Chemical is expected to see normalization of its stock price, driven by full-scale restructuring and industry recovery. Lotte Fine Chemical is projected to show a differentiated stock performance due to the accelerated turnaround in its epichlorohydrin (ECH) business and the resolution of parent company discounts.

원본보기 아이콘

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.