[Click eStock] Lotte Chemical, When Is the End of the Dark Tunnel?

[Asia Economy Reporter Hwang Junho] Yuanta Securities maintained the target price for Lotte Chemical at 230,000 KRW but described the future outlook as "bleak."

On the 1st, Yu Kyu-won, a researcher at Yuanta Securities, set Lotte Chemical's investment opinion to 'neutral,' stating, "The company is still passing through a dark tunnel in the first quarter of this year."

Yuanta Securities expects Lotte Chemical to record sales of 5.3 trillion KRW and an operating profit of 43.2 billion KRW in the first quarter of this year. The operating profit estimate represents a 93% decrease compared to the same period last year.

The biggest issue affecting performance is the supply and demand impact in petrochemicals. During the Chinese Olympics, manufacturing operation rates were controlled, and lockdowns due to the spread of Omicron significantly reduced demand for petrochemical products. As a result, the petrochemical product spread dropped to $495 per ton (down from $515 per ton in the previous quarter).

The rising trend in international oil prices is also a burden. When international oil prices rose to $100 in 2011, the global petrochemical product demand growth rate decreased by 1.1 percentage points (from 4.3% to 3.2%).

Excessive surplus capacity is also a problem. Researcher Hwang diagnosed, "At the beginning of this year, the operating rate of major ethylene facilities in Asia was lowered to 10-15%, but surplus capacity increased by about 4 to 5 million tons annually," adding, "Additionally, a new 6 million ton facility is being added, which corresponds to 17% of Asia's demand and 7% of global demand."