"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 domestic petrochemical companies, which had seen operating rates drop to around 50% in March and April due to a shortage of Middle Eastern naphtha, are now increasing their production rates after securing alternative supplies from the U.S., Algeria, and Oman.
On the afternoon of May 11, the Navigait McAllister, carrying 60,000 tons of naphtha from the United Arab Emirates, arrived at Yeosu-Gwangyang port after briefly escaping the blockade of the Strait of Hormuz on April 18. Approximately 40,000 tons are expected to be supplied to Yeocheon NCC, a joint venture between Hanwha Solutions and DL Chemical, while around 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 necessary to enhance the efficiency of basic component cracking.
Last weekend, 70,000 tons of Algerian naphtha were delivered to Yeocheon NCC, and 57,000 tons of Omani naphtha currently being unloaded will be distributed among LG Chem, Lotte Chemical, and Yeocheon NCC. It is also reported that around 160,000 tons of U.S. naphtha have already arrived at Yeosu-Gwangyang port.
Notably, the Omani naphtha is significant as it was secured during a visit by Chief Presidential Secretary Kang Hoon-sik to Kazakhstan, Oman, Saudi Arabia, and Qatar as a strategic economic envoy in April.
Industry analysts predict that the naphtha arriving at Yeosu-Gwangyang port since last weekend could supply enough material for about 10 billion plastic bags, which is expected to alleviate the ongoing packaging crisis.
The rapid acquisition of alternative naphtha supplies by petrochemical and refining companies is supported by government initiatives. In March, the government announced plans to subsidize 50% of the increased import costs of naphtha 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, 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 that the supply of domestic petrochemical products, such as packaging materials and clothing, is not disrupted.
Yeocheon NCC has increased its NCC operating rate from a low of 55% to 65%, while Lotte Chemical has raised the 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 petrochemicals, has stabilized above the breakeven point of $250, reaching between $300 and $350. Major petrochemical companies are expected to see significant improvements in Q2 performance compared to Q1. The outlook for Q3 and Q4 is also positive, as petrochemical facilities in the Middle East, including Kuwait and Qatar, have been impacted by the ongoing conflict, and shortages of ethylene-based packaging materials are likely to persist not only in Korea but also in China and Japan.
An industry insider stated, "The ongoing conflict has underscored the importance of naphtha and ethylene as strategic national resources, and the oversupply of basic components will be partially resolved. The government's industrial restructuring efforts should be re-evaluated in light of the changing supply chain situation."
* This article has been translated by AI.
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