Cable Industry Sends 'Raw Material Emergency' SOS to KEPCO... Naphtha Shock Hits Industry

From Distribution Networks to HVDC, Supply Instability Spreads
KEPCO Holds Emergency Meeting, Considers Waiving Late Delivery Penalties
Electronics Industry Maintains Emergency Response, Secures Inventory

The aftermath of the Iran war has led to an emergency in the supply of naphtha, a key raw material for electric cables, raising concerns that domestic power infrastructure construction projects could be suspended. Despite a temporary ceasefire, ongoing instability in raw material supply has prompted the cable industry to request urgent action from Korea Electric Power Corporation (KEPCO). If the situation persists, it is expected that a 'domino effect' of delays will be inevitable across the entire national power grid expansion project.

According to the industry on April 10, the cable industry has requested urgent measures from KEPCO as supply instability of raw materials due to the Middle East conflict appears to be materializing. The aftermath of the Iran war has disrupted the supply of crude oil and naphtha, which could also affect the supply of insulation materials—a core component of cables. Polyethylene (PE) and polyvinyl chloride (PVC), essential for the insulation and sheathing layers of cables, are produced using naphtha as a basic raw material and are mainly used in distribution cables such as utility poles. While the cable industry currently holds about two months' worth of inventory, avoiding immediate production stoppages, if the war becomes prolonged, worsening profitability due to rising raw material costs and reduced production volumes will be inevitable.

On January 8, 2024, steam is being emitted from the chimney of the Shin Incheon Combined Cycle Power Plant in Seo-gu, Incheon, due to an increase in electricity consumption. Photo by Kang Jinhyung

Although the United States and Iran have agreed to a two-week temporary ceasefire and the opening of the Strait of Hormuz, market anxiety remains high. In particular, the cable industry is concerned that if operational rates at major petrochemical complexes inside Iran fall, or if logistics risks such as increased transportation costs intensify, not only ongoing distribution network construction but also all national power grid expansion projects scheduled for the second half of the year could face disruptions.

It is power distribution companies that are being affected immediately by delays in raw material supply. This is because naphtha-based raw materials make up a large proportion of distribution network cables. If supply is disrupted, there are concerns that construction of distribution networks—transmitting electricity from substations to buildings, factories, and data centers—could also be halted.

According to KEPCO, on the previous day, KEPCO held a 'Cable Supply Countermeasure Meeting' at the KEPCO Art Center in Seocho-dong, Seoul, inviting cable manufacturers such as LS Cable and Iljin Electric, as well as manufacturers of cable compound resins. Previously, companies had requested KEPCO to take action, citing difficulties in producing key products, prompting KEPCO to convene an emergency meeting to formulate countermeasures. It has been reported that KEPCO responded by saying it would exempt suppliers from late delivery penalties if supply delays lead to construction delays.

If the war drags on, state-led HVDC (High Voltage Direct Current) projects could also be affected. In fact, KEPCO has begun full-scale design of the West Coast Energy Expressway project and is currently holding large-scale cable manufacturing tenders. As this project is a key initiative to transmit renewable energy from the west coast to the Seoul metropolitan area, delays in delivery due to inability to procure raw materials could directly impact national energy security. An industry official explained, "If material procurement faces disruptions, national power grid projects are also highly likely to be delayed in a domino effect."

Accordingly, the cable industry is accelerating efforts to strengthen the resilience of its supply chain. The industry is working to increase the proportion of long-term contracts (over one year), while reducing short-term spot contracts to enhance supply stability. Additionally, the industry is specifying a 'supply chain diversification' strategy by reducing dependence on raw materials from the Middle East and Europe—which are geopolitically risky—and expanding procurement routes to the United States and Southeast Asia. Companies have also entered an emergency response mode across their operations.

A KEPCO official stated, "Currently, we have secured raw material inventory equivalent to 3.2 months of supply. If naphtha supply is cut off, construction deadlines may be delayed, so we plan to respond by exempting late delivery penalties. As for national transmission grid projects scheduled for tender next year and beyond, there appear to be no issues at this time."

Although the news of the ceasefire has been delivered, the semiconductor and home appliance industries, which rely on supplies of helium and naphtha, are also remaining vigilant. The industry maintains that it will not suspend its emergency response system in preparation for a prolonged war. A representative from the semiconductor industry said, "Even if a ceasefire is achieved, it is too short a period for immediate improvement in raw material supply or to adjust export payment strategies. Since a formal end to the war has not been confirmed, we will continue to closely monitor the situation." The home appliance industry also plans to secure safety stocks during the ceasefire and monitor changes in logistics costs.

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