IBK Securities said on the 16th that Lotte Fine Chemical is likely to benefit from higher ammonia prices due to disruptions in the Strait of Hormuz. It maintained a "buy (BUY)" rating and raised its target price to 63,000 won from 62,000 won. Lotte Fine Chemical closed at 51,400 won in the previous session.
Researcher Lee Dong-uk at IBK Securities explained, "The fact that urea and ammonia are reacting most sensitively to the situation in the Strait of Hormuz is because nitrogen fertilizers are most directly linked to Middle Eastern gas and ammonia supply."
With the situation in the Strait of Hormuz, prices of urea and ammonia are rising and the supply of nitrogen fertilizers is tightening. The researcher said, "For urea, concerns about supply disruptions from the Middle East coinciding with India's tender wait have reduced transaction volume but sharply pushed up selling prices, and for ammonia, simultaneous upward pressure is being seen across Asia, Europe and the Americas."
The researcher also said, "For ammonia, elevated natural gas (TTF gas) prices in Europe, production disruptions in Trinidad, and scheduled maintenance in Indonesia are overlapping, so it is reasonable to interpret the global nitrogen supply-demand balance itself as rapidly contracting."
In this environment, Lotte Fine Chemical is expected to see higher profits through its distribution infrastructure.
The researcher emphasized, "What matters is that Lotte Fine Chemical is a player that strongly functions as a domestic ammonia distribution hub," adding, "It presents ammonia as a core product and merchandise category and has the largest ammonia storage infrastructure in the country."
He added, "Amid disruptions in the Strait of Hormuz, it is appropriate to view Lotte Fine Chemical's key competitiveness as residing more in its tank terminal, procurement lines and sales network than in production facilities themselves," and "In the short term, we could simultaneously see international price increases, a rise in the value of inventory assets, and an expansion of customers' pre-emptive procurement demand."