Sequential Ethylene Production Cuts... Only Two Weeks of Naphtha Inventory Left for Key Feedstock

Naphtha Procurement Disrupted by US-Iran Conflict
Lotte Chemical, LG Chem Cut Operations
Rising Prices and Shipping Costs Hit the Entire Industry

Due to the blockade of the Strait of Hormuz, disruptions in the procurement of naphtha—a key raw material for petrochemicals—have raised alarms over the supply of petrochemical products. Industry sources believe that current naphtha inventories may last only as little as two weeks and, at most, up to a month.

According to industry reports on March 12, naphtha inventories are at around a two-week level, which could impact the production of basic materials such as ethylene, which is produced through naphtha refining. Ethylene, often referred to as the "rice of petrochemicals," is a fundamental feedstock used in the production of various petrochemical products, including plastics, fibers, and packaging materials.

If ethylene production is reduced, this could sequentially affect the supply of petrochemical products that use ethylene as a raw material. Analysts predict that the impact could spread across the entire manufacturing sector that relies on petrochemical products such as plastics, fibers, and packaging materials.

According to foreign media, Japan, which has a crude oil reserve sufficient for around 250 days, is estimated to have a naphtha inventory lasting about 20 days. Since naphtha accounts for only about 10% of crude oil refined, and given that South Korea has a smaller crude oil reserve compared to Japan—about 208 days' worth—this equates to roughly two weeks of naphtha supply. However, considering stocks held directly by industry, it is believed that supply can be maintained for a certain period.

The challenge lies in the import conditions. In addition to rising prices, logistics and freight costs are also increasing. The domestic petrochemical industry imports more than 60% of its naphtha supply, or 26.7 million tons, from overseas, with approximately 20 million tons sourced from the Middle East.

South Korean petrochemical companies have begun to cut back on ethylene production. Lotte Chemical has lowered the operating rate of its Daesan plant by 10% and is considering advancing maintenance at its Yeosu plant, originally scheduled for next month, by two weeks. LG Chem has also further reduced its plant operating rates. Companies such as Korea Petrochemical Ind. Co. and Hanwha TotalEnergies have also entered into production cuts. Both LG Chem and Lotte Chemical have notified their clients of the possibility of "force majeure" in supply, as difficulties in securing naphtha could disrupt the supply of ethylene and other key products.

As naphtha supply disruptions lead to reduced ethylene production, companies that use ethylene as a feedstock are closely monitoring the unstable supply situation. An official from the chemical industry stated, "We are reviewing countermeasures in anticipation of potential supply disruptions of raw materials should the situation persist over the long term."

The industry expects that some volume can be secured through the use of oil reserves. However, the effect may be limited, and there are concerns that this could lead to upward pressure on prices across the industrial sector.

Yoo Seunghoon, professor at Seoul National University of Science and Technology’s Department of Future Energy Convergence, explained, "If there is a disruption in naphtha supply, petrochemical production will be affected first, followed by a ripple effect across the manufacturing sector that uses petrochemical products such as plastics, fibers, and packaging materials. As naphtha serves as a fundamental raw material for our industry, prolonged supply issues could become a burden on the overall economy."

This content was produced with the assistance of AI translation services.