"Ships carrying naphtha from around the world are arriving one after another. It's a sight we haven't seen in nearly a decade," said a worker at the Yeosu-Gwangyang port.
On May 11, the petrochemical and shipping industries reported that major domestic petrochemical companies, which had reduced their operating rates to around 50% in March and April due to a shortage of Middle Eastern naphtha, are now ramping up production after securing alternative supplies from the U.S., Algeria, and Oman.
On the afternoon of May 11, the Navigait McAllister, which escaped the Strait of Hormuz with 60,000 tons of naphtha from the United Arab Emirates after the blockade was briefly lifted on April 18, arrived at Yeosu-Gwangyang port. About 40,000 tons are expected to be supplied to Yeocheon NCC, a joint venture between Hanwha Solutions and DL Chemical, while approximately 20,000 tons will go to GS Caltex.
GS Caltex operates a mixed feedstock cracking facility (MFC) that refines basic petrochemical components from crude oil instead of naphtha, but experts say a certain amount of light naphtha is still needed to enhance the efficiency of the basic component cracking process.
Last weekend, 70,000 tons of naphtha from Algeria were delivered to Yeocheon NCC, and 57,000 tons of naphtha from Oman are currently being unloaded, with LG Chem, Lotte Chemical, and Yeocheon NCC sharing the supply. Additionally, about 160,000 tons of naphtha from the U.S. have reportedly already arrived at Yeosu-Gwangyang port.
Notably, the naphtha from Oman is particularly significant as it was secured during a visit by Chief of Staff Kang Hoon-sik to Kazakhstan, Oman, Saudi Arabia, and Qatar in April as a special economic envoy.
Industry insiders estimate that the naphtha arriving at Yeosu-Gwangyang port since last weekend could supply enough material for approximately 10 billion plastic bags, which is expected to alleviate the ongoing packaging crisis.
The government's support measures have enabled petrochemical and refining companies to accelerate their efforts to secure alternative naphtha supplies. In March, the government announced plans to subsidize 50% of the increase in naphtha import prices for domestic petrochemical companies with naphtha cracking facilities (NCC) through a supplementary budget.
On May 7, the Financial Services Commission proposed a financial support plan to stabilize naphtha supply and demand, which includes raising the limit on naphtha import letters of credit (L/C) to $300 million, set to take effect on May 18.
By securing naphtha and crude oil, companies in the three major petrochemical complexes in Yeosu, Daesan, and Ulsan are working diligently to raise NCC operating rates and ensure a steady supply of domestic petrochemical products, including packaging materials and clothing.
Yeocheon NCC has increased its NCC operating rate from a low of 55% to 65%, while Lotte Chemical has raised its Daesan NCC operating rate from the 70% range to 83%. LG Chem plans to boost the operating rates of its Daesan and Yeosu NCC (Plant 1) to 75% by the end of Q2, and Daehan Oil has adjusted its Ulsan NCC operating rate from 62% to 72%.
The naphtha-ethylene spread, a key profitability indicator for the petrochemical sector, has stabilized above the breakeven point of $250, reaching between $300 and $350. Major petrochemical companies are expected to see significant improvements in their Q2 performance compared to Q1. The outlook for Q3 and Q4 is also positive, as the conflict in the Middle East has impacted petrochemical facilities in Kuwait and Qatar, and shortages of ethylene-based packaging materials are likely to persist not only in South Korea but also in China and Japan.
An industry official stated, "This conflict has underscored the importance of naphtha and ethylene as strategic national resources, and the oversupply of basic petrochemical components will be partially resolved. The government's restructuring of the petrochemical industry should be reconsidered in light of the changing supply chain situation."
* This article has been translated by AI.
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