U.S.-Iran Deal Complicates Outlook for South Korean Petrochemical Firms Amid Oversupply Fears

South Korea's petrochemical sector faces a complicated outlook following a potential U.S.-Iran agreement that could reopen the Strait of Hormuz. While the prospect of lower oil prices offers a welcome reduction in cost burdens, the industry is simultaneously bracing for the potential return of oversupply from China.

This situation creates a dual challenge. The anticipated drop in oil prices, a key input cost, should theoretically improve profit margins. However, this benefit could be offset by increased competition from Chinese products flooding the market.

Furthermore, South Korean companies are concerned about the risk of "reverse legging." This occurs when companies sell products at low prices, despite having acquired the raw materials at high costs. This scenario, driven by fluctuating market conditions and potential oversupply, could significantly erode profitability.