Naphtha Supply Management Helps Remicon Industry Avoid Shutdown Crisis

In the wake of the Middle East war, the ready-mixed concrete (remicon) industry, which had been engulfed by rumors of a "two-week shutdown," appears to have averted an immediate production halt thanks to supply management of naphtha by the government and petrochemical companies. However, experts point out that if the current supply-and-demand disruptions are not fully resolved, there are clear limits to responding solely by restricting domestic quantities. Efforts to secure alternative import sources must be pursued in parallel.

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According to the industry on April 15, during a recent meeting attended by representatives from the domestic remicon industry, the Ministry of Trade, Industry and Energy, the Ministry of Land, Infrastructure and Transport, and others, domestic petrochemical firms such as Lotte Chemical discussed supplying VPEG (polycarboxylate-based raw material), a key ingredient for remicon admixtures, to domestic construction projects without disruption. Admixture raw materials are made by processing ethylene extracted during naphtha refining. As concerns grew within the domestic construction industry due to the supply blockade of naphtha caused by the Middle East war, authorities moved to address the issue. It is estimated that Lotte Chemical accounts for over 90% of the domestic production of remicon admixture raw materials.

The remicon industry is breathing a sigh of relief, having overcome the worst for now. There had been widespread concerns within and outside the industry that if the Middle East war continued, the supply of raw materials needed for admixture production would be cut off, potentially bringing factory operations to a halt in one to two weeks. In this situation, the government and petrochemical companies redirected export quantities-accounting for about 12% of domestic naphtha production-back to the domestic market and prioritized the supply of admixture raw materials at home. As a result, the industry expects that it will be possible to stockpile enough admixture for at least three months without difficulties.

A representative of the Korea Ready-mixed Concrete Industry Association stated, "Since the implementation of the naphtha export restriction measures, it appears that the supply of admixtures has recovered to about 80% of pre-war levels. If things continue as they are, there should be no major problems with supply at construction sites in the immediate future."

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However, with the ongoing confrontation between the U.S. and Iran around the Strait of Hormuz, there are calls for mid- to long-term strategies to prepare for a prolonged conflict. According to data analyzed and released last month by the Korea Small Business Institute, as of 2024, the proportion of naphtha imported from the Middle East by domestic small and medium-sized enterprises (SMEs) stood at 82.8%, more than 20 percentage points higher than the average for all companies (60%). Since most domestic remicon companies are SMEs, any continued reliance on the Middle East could cause supply instability to resurface at any time.

Minyi Shin, Associate Research Fellow at the Korea Small Business Institute, said, "While short-term stabilization measures are important, the government must also consider strategies based on the scenario of a prolonged Middle East war. It is necessary to review policy responses such as diversifying alternative supply sources, expanding strategic reserves, and establishing priority supply cooperation systems with major Middle Eastern countries."

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