Analysis has pointed out that the growth of China’s ultra-low-cost distribution platforms such as Temu, Ali, and Shein will have a positive impact on the performance of domestic petrochemical companies that produce cheap plastics. This is because many of the products sold on these platforms are made of low-cost plastic.
A panoramic view of the Yeosu Lotte Chemical 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 this year, rose about 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 petrochemical products account for 90% of total sales. More than half of all Lotte Chemical’s sales come from general purpose products.
The stock market believes that the increase 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 about 40% of the materials needed to produce plastic products from Korean companies. In other words, as platforms like Temu and Ali grow, the 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 equates to 1.5% of global overall plastic production.
Because of this atmosphere, the target stock prices of Lotte Chemical and Korea Petrochemical were recently adjusted upwards. Lotte Chemical’s target stock price was 168,600 won a month ago, but it rose to 174,938 won on the 4th of this month. Korea Petrochemical’s fair stock price was 181,400 won six months ago, but was recently revised up to 195,833 won. Jeon Woo-je, a researcher at KB Securities, said, “China’s general purpose chemical implementation rate increased from 60% in 2020 to 80% this year.”
Graphics = Son Min-kyun
However, it is not clear whether the increase in demand for cheap plastics, which is focused 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. While 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 dropped 44.60% in its stock price this year.
Experts say that as the domestic petrochemical industry is moving towards the expansion of high value-added products, increasing demand for automobiles and high-end electronic products may lead to an improvement in the overall situation of the industry. Yoon Yong-sik, a researcher at Hanwha Investment & Securities, said, “In order to improve the polyvinyl chloride (PVC) and ABS markets, which is one of Korea’s main products, the construction economy must improve and sales of cars and home appliances. must increase.”
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