Petrochemical Operating Rates Plunge to 60%... Non-NCCs Also at Risk If Shutdown Continues in April

Disruptions in Naphtha Supply from the Middle East

Inventories Expected to Run Out by End of March

NCC Operating Rates Plunge to 60% Range

Some Companies Consider Further Production Cuts

Rising Costs and Supply Shocks

Impact Spreads Beyond NCCs to Downstream Companies

Due to geopolitical risks originating from the Middle East, disruptions in naphtha supply are shaking the entire domestic petrochemical industry. As the operating rate of naphtha cracking centers (NCC) has dropped to the 60% level, there is growing concern that major domestic NCCs may declare force majeure one after another next month, when their stockpiles of raw materials are expected to run out. Analysts point out that companies without NCC facilities (non-NCCs) are not exempt from this crisis.

According to the industry on March 19, the current operating rates of major domestic petrochemical companies’ plants have fallen to around 60%. Lotte Chemical has recently reduced the operating rates of its Daesan and Yeosu plants from the previous 80-85% to 70%. The company has also brought forward regular maintenance of the Yeosu plant by two weeks, now planning to begin at the start of next month. Their strategy is to halt plant operations during the maintenance period and effectively stop naphtha consumption to secure as much inventory as possible. Yeocheon NCC has also reportedly lowered its operating rate from the previous 80% level to 65%.

The decline in operating rates directly leads to deteriorating profitability. Petrochemical plants are designed to operate 24 hours a day, so the lower the operating rate, the more sharply production costs rise. The burden is especially heavy for upstream companies, which decompose naphtha to produce basic feedstocks such as ethylene. Amid a situation where profitability has already significantly worsened due to oversupply from China, companies now face additional instability in securing raw materials.

Some companies have stated that, if the situation worsens, they may lower their operating rates further to the mid-50% range. An official from the petrochemical industry explained, "We are deliberately reducing our operating rates to conserve raw materials as much as possible," adding, "We have entered a 'survival mode' to prolong our inventory as long as possible."

Although petrochemical companies are continuing production by utilizing their naphtha inventories, most industry observers believe even this will be difficult to sustain beyond the end of this month. A Lotte Chemical official said, "Most companies see March as the final threshold," and added, "Starting in April, it is highly likely that force majeure declarations will follow in order as inventories are depleted." Yeocheon NCC has already declared force majeure, and LG Chem, Lotte Chemical, and Hanwha Solutions have also notified possibilities of force majeure for some products.

Kumho Petrochemical Yeosu Rubber Plant. Kumho Petrochemical

This shock is rapidly spreading to downstream companies such as Kumho Petrochemical and Kolon Industries, which further process basic feedstocks into precision chemical products such as polyethylene. These companies produce their products by sourcing basic raw materials like ethylene and propylene from NCCs.

A Kolon Industries official said, "If NCC output decreases, prices will rise, and in the end, downstream companies will directly bear the increased production costs. There may be a time lag, but the impact is unavoidable." Another downstream industry official stated, "We have relatively more inventory flexibility, so the immediate shock is limited," but also warned, "If the situation drags on for more than four weeks, supply routes themselves could be disrupted, resulting in a direct hit."

Some believe that the possibility of importing Russian naphtha could become a variable. An industry official commented, "If imports of Russian naphtha resume, it would temporarily ease the supply of raw materials," adding, "The shorter transportation distance would allow a swift impact on actual NCC operations."

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