FT: "Hormuz Closure Triggers Naphtha Shortage... Crisis for South Korean and Japanese Petrochemical Industries"

"Unlike China, Difficult for Korea and Japan to Choose Russia as an Alternative Supplier"

The Financial Times (FT) reported on March 15 that the closure of the Strait of Hormuz due to the war in the Middle East has triggered a shortage of naphtha, a key raw material for plastics, severely impacting the petrochemical industries of both South Korea and Japan.

Yeosu Petrochemical Complex. Yonhap News Agency

According to FT, even before the outbreak of war on February 28, South Korean and Japanese petrochemical companies were already operating at reduced capacity due to chronic overcapacity among Chinese competitors. The recent naphtha shortage has compounded the difficulties they face. Naphtha is a hydrocarbon mixture extracted during crude oil distillation and is an essential feedstock for plastics and related products.

Data from Sparta Commodities, an oil market information provider cited by FT, show that both South Korea and Japan import about two-thirds of their total naphtha consumption. Of this imported naphtha, 60% for South Korea and 70% for Japan comes from the Persian Gulf region.

According to S&P Global Energy, naphtha prices have soared 50% since last month, reaching 875 dollars per ton. However, in the wake of Iran's retaliatory attacks, shipping through the Strait of Hormuz has been virtually blocked, making it increasingly difficult to secure supply itself.

Yeochun NCC, South Korea’s largest standalone ethylene producer, declared a force majeure last week and announced it had cut production to a minimum operating level. In the past three days, Lotte Chemical and LG Chem have also notified clients of potential contract non-fulfillment. In Japan, Mitsubishi Chemical and Mitsui Chemicals have also begun cutting production. Analysts at Citigroup Japan have warned that unless the situation improves by mid-April, "multiple ethylene plants will be at risk of shutting down."

FT analyzed that, while China is managing to avoid the crisis thanks to its domestic oil refining capacity and use of Russian crude, the United States' allies South Korea and Japan are struggling to source resources from Russia because they must comply with sanctions. The South Korean government announced on March 13 that it would restrict exports of domestically produced naphtha and prioritize naphtha supply in the event of a strategic petroleum reserve release.

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