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As you know, I had been invested in petrochemical industry through LCTITAN since last year July 2024, which is around RM 1.00 region. At the current share price, it is 50% of losses on my investment due to a lot of happening both in the invested company, as well as the broad industry outlook of petrochemical.
Firstly, there is some very bad news on LCTITAN which include liquidity crisis in the parents company, LOTTE CORP KOREA as well as LOTTE CHEMICAL KOREA.
Then LCTITAN had been rolling in more losses for 14 consecutive quarter, and cash pile is decreasing, and a lot of big impairment is being shelled out at the balance sheet, which include a temporary closure of naphtha crack plant 1.
Then Lotte USA at LOUISANA, which LCTITAN have 40%, also taken a big blow.
Subsequently, the LINE project is also not projected to start until 2Q of 2025, which is also taken a very big pile of cash.
Lastly, unending of bad press article surrounding LOTTE and wave of short selling are pressing the share price further south, with the last shot from MAYBANK INVESTMENT BANK putting a target price of RM 0.39.
IS THERE ANY BRIGHT SIDE FOR PETROCHEMICAL INDUSTRY? LCTITAN?
First, I would like to give you a very easy understanding on why the Petrochemical industry is having such a hard time, especially during the war zone period.
The prime reason of the slump is due to the RUSSIA funding the war with UKRAINE through oil sales, and while RUSSIAN OIL is being sanctioned, China and India are buying the sanctioned oil at a very cheap price and processing it through their refinery, flooding the market with cheap petrochemical goods.
Refinery that are aligned to US and adhere sanction will be buying crude at spot rate, hence output of the petrochemical product will be automatically higher. In order to defend market share, refinery need to defend market share and customer, refinery using legitimate oil need to go into negative margin territory.
The solution for this situation
1. Harsher and stricter sanction and tariffs on supply chain of sanctioned oil (from oil producer, oil tanker, refinery, and end product)
2. legitimate crude oil spot price become lower, so that differential between sanctioned oil and legitimate oil is lesser, petrochemical product will get better margin without needing to fight with sanctioned oil product
PETROCHEMICAL TURNING POINT?
ISRAEL PALESTINE WAR - CEASEFIRE & STOP
RUSSIA & UKRAINE WAR - IN NEGOTIATION TO STOP SOON
1.) HEAVY AND STRICTER SANCTIONED ON ALL PARTY INVOLVED IN SANCTIONED OIL TRADE
The following sanction had greatly hurt all those involved in sanctioned oil trade for the previous 2 years.
2.) US pull out from PARIS AGREEMENT - signaling coming low oil price season
With the share price of LCTITAN being battered so lowly now, which is below 50 cents as of writing, it might be a very good take for opportunist investor to look at the potential turn around of the legitimate petrochemical company
After all, ELON MUSK prediction on HUMANOID AI BOTS like TESLA OPTIMUS 2, and upcoming OPTIMUS 3 will be looking at more than 10 billion unit by 2040. Weighing approximately 50kg, around 50% of the weight will be consisting of high-grade plastic, which will be the new coming demand for petrochemical.
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