South Korean petrochemical producers face continued cost pressure from high naphtha prices, even as international crude oil declines on hopes of a US-Iran peace deal. Naphtha remains at $800–900/tonne, and the lag effect from expensive feedstock purchased after the Middle East conflict is expected to hit margins from the second half of 2026. Overseas buyers should monitor potential price firming in downstream petrochemical products as Korean producers absorb higher input costs.
Naphtha price remains elevated
Naphtha, the key feedstock for South Korean petrochemicals, is trading at $800–900/tonne, still significantly above the sub-$500/tonne level seen at end-2025. Although crude oil has softened recently, naphtha prices have not followed proportionally, keeping raw material costs high for producers.
Negative lag effect expected from H2 2026
During the first half of 2026, Korean producers benefited from low-cost feedstock inventories secured before the Middle East conflict. However, from the second half, they will increasingly need to process expensive naphtha purchased after the conflict began. This negative lag effect is expected to compress margins even if product prices remain elevated.
Product price rise may not fully offset cost
Petrochemical product prices have risen alongside naphtha, which helped producers maintain profits in H1 2026. But once high-cost feedstock dominates input, the margin buffer narrows. An industry source noted that "positive lag effects seen in Q1 and Q2 will likely fade, and profit levels could shrink from H2."
China oversupply adds to pressure
Beyond feedstock costs, Korean producers face sustained oversupply of low-priced Chinese petrochemical products. Industry expects Chinese capacity expansion to continue through 2027, keeping export competition intense. This dual pressure—rising raw material costs and cheap Chinese imports—may squeeze margins for Korean producers in the medium term.
What buyers should watch
Importers and distributors of petrochemical derivatives from South Korea should anticipate possible price firming in H2 2026 as negative lag effects take hold. However, competition from Chinese suppliers may limit the extent of price increases. Buyers may want to secure contracts early or diversify sourcing to manage cost exposure.
Source: Read the original report | Published: February 26, 2026