Lotte Chemical's ethane cracker plant in Louisiana / Courtesy of Lotte Chemical

Cautious optimism is growing that former U.S. President Donald Trump's return will bring earnings recovery in the Korean petrochemical sector, which has struggled with declining profits in recent years.

His pledge of increased oil and gas drilling in U.S. territory is expected to strengthen the sector's price competitiveness by lowering costs to produce naphtha, a fraction of crude oil, used to make plastic and other petrochemical products.

On Sunday, President Yoon Suk Yeol mentioned the petrochemical industry as one of the main beneficiaries of the incoming Trump administration.

"If the new U.S. administration adopts a more flexible policy on fossil fuels, our slightly stagnant petrochemical industry may see a return to normal," Yoon said during an emergency economic and security meeting on the possible impact of Trump's return.

Jeon Yu-jin, an analyst at iM Securities, also predicted that the incoming Trump government will have positive impacts on the petrochemical sector.

"Although there remains the possibility of hefty tariffs dealing a blow to the Korean petrochemical firms, investors need to focus more on the falling production costs," the analyst said.

Lotte Chemical, one of Korea's four largest petrochemical firms, showed mixed responses to Trump's reelection.

Lotte Group Chairman Shin Dong-bin, right, and then-Prime Minister Lee Nak-yon display a congratulatory message from then-U.S. President Donald Trump during a celebration of the completed construction of Lotte Chemical's ethane cracker plant in Louisiana in this May 2019 photo. Yonhap

During Trump's previous term, the company finished the construction of its ethane cracker plant in the U.S. state of Louisiana, which led to the invitation of Lotte Group Chairman Shin Dong-bin to the White House.

Over the past four quarters, however, Lotte Chemical has failed to profit from its business.

In response, it recently unloaded its non-core assets in other countries and has considered carrying out a voluntary redundancy program.

Additionally, Shin and other executives agreed to return part of their salaries.

"Eased regulations on fossil fuel and increased energy production will stabilize the oil price," a Lotte Chemical official said during a conference call on the company's third-quarter earnings last Thursday. "This will have a positive impact on the refining and petrochemical industries, but his protectionist policies seem likely to have negative impacts on trade and exports."

Based on the rosy outlook for Trump's impact on the petrochemical industry, the government plans to announce strategies to enhance the sector's competitiveness next month.

However, some industry officials point out that it remains to be seen whether Trump's policies will improve the profitability of Korean petrochemical firms, given that the main reasons for the slump are oversupply of low-priced Chinese products and sluggish global demand.