2024-04-05 23:41:00
Analysis has drawn attention that the growth of China’s ultra-low-cost distribution platforms such as Temu, Ali, and Shein will have a positive effect on the performance of domestic petrochemical companies that produce inexpensive plastics. This is because many of the products sold on these platforms are made of low-cost plastic.
Panoramic view of Lotte Chemical’s Yeosu plant. /News 1
According to the Korea Exchange on the 6th, the stock price of Korea Petrochemical (006650), which was 122,700 won on January 22nd of this year, rose regarding 19% to 146,000 won on the 5th of this month. During the same period, Lotte Chemical (011170) stock price rose 3.52% from 116,600 won to 120,700 won. This is good news as the domestic petrochemical industry is in a sluggish situation due to global oversupply and high oil prices.
What these two companies have in common is that they mainly produce relatively cheap plastic materials such as polyethylene (PE) and polypropylene (PP). At Korea Petrochemical, general-purpose petrochemical products account for 90% of total sales. Lotte Chemical also accounts for more than half of its total sales from general-purpose products.
The stock market believes that the rise in the stock prices of these companies is not unrelated to the growth of Chinese distribution platforms such as Temu, Ali, and Shein, which sell cheap goods with ‘quantity over quality.’ This is because many of the cheap items sold on distribution platforms are made of general-purpose plastic.
Chinese petrochemical companies import regarding 40% of the materials needed to manufacture plastic products from Korean companies. In other words, as platforms like Temu and Ali grow, demand for plastics naturally increases, which also helps the performance of related domestic companies. According to KB Securities, the current daily trading volume is 040,000 tons for Temu, 05,000 tons for Shein, and 01,000 tons each for Alibaba and TikTok. This is equivalent to 1.5% of global general-purpose plastic production.
Due to this atmosphere, the target stock prices of Lotte Chemical and Korea Petrochemical were recently adjusted upward. Lotte Chemical’s target stock price was 168,600 won a month ago, but it rose to 174,938 won as of the 4th of this month. Korea Petrochemical’s fair stock price was 181,400 won six months ago, but it was recently revised upward to 195,833 won. Jeon Woo-je, a researcher at KB Securities, said, “China’s general-purpose chemical operation rate increased from 60% in 2020 to 80% this year.”
Graphics = Son Min-kyun
However, it is unclear whether the increase in demand for cheap plastics, centered on the Chinese distribution industry, will lead to an improvement in the overall industry of Korea’s petrochemical industry, which is suffering from a recession. Although demand for general-purpose products has increased, demand for high value-added products such as high value-added synthetic resin (ABS) and polycarbonate (PC) is still sluggish. LG Chem (051910), which ranks first in the world in terms of ABS plastic used in home appliances, automobiles, and information and communication (IT) devices, has fallen 44.60% in its stock price this year.
Experts say that as the domestic petrochemical industry is moving toward expanding high value-added products, increasing demand for automobiles and high-end electronic products can lead to an improvement in the overall industry situation. Yoon Yong-sik, a researcher at Hanwha Investment & Securities, said, “In order to improve the polyvinyl chloride (PVC) and ABS markets, which are one of Korea’s main products, the construction economy must improve and sales of automobiles and home appliances must increase.”
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