Domestic petrochemical corporations are halting production facilities one after another due to naphtha supply disruptions caused by the Middle East war. The petrochemical industry fears more corporations may suspend operations of their naphtha cracker (NCC) facilities because their naphtha inventories cover only two weeks.
If the NCC, often called the rice of the petrochemical industry, stops, the interruption in intermediate goods production could shock the broader national economy. The NCC is a facility that splits naphtha to produce basic feedstocks such as ethylene, propylene and butadiene. These are used to make everyday items around us, including plastics, vinyl and automobile interior materials.
According to corporations located in the Yeosu National Industrial Complex in South Jeolla Province on the 23rd, LG Chem's Yeosu plant halted operations of NCC Plant No. 2 starting that day. The plan is to stop Plant No. 2 until naphtha supply stabilizes and run only Plant No. 1. By plant, annual ethylene output is about 1.2 million tons for Plant No. 1 and about 800,000 tons for Plant No. 2.
Yeochun NCC also halted operations of its Olefin Conversion Unit starting that day. With the naphtha cracker (NCC) operating rate stuck at 60%–65%, the company decided to stop lower-demand processes first as part of production adjustments. Yeochun NCC, Korea's largest ethylene production base, also officially declared "force majeure" to clients on the 4th of this month.
Lotte Chemical moved up its turnaround (TA) schedule, which shuts down production facilities, ahead of plan. The major maintenance originally set for the 18th of next month will begin on the 27th, about three weeks earlier. With naphtha supply tight and inventories low, the company anticipated disruptions in feedstock supply and responded by adjusting the maintenance schedule.
The impact stems from the closure of the Strait of Hormuz, through which more than half of Korea's naphtha imports pass, cutting off materials and supplies. According to the Korea Chemical Industry Association, the naphtha price, which was $595 per ton in January this year, jumped to $1,141 on the 20th of this month. Ethylene also soared from $705 to $1,425.
Amid government-led restructuring in the petrochemical sector, the shortage of materials and supplies is prompting more corporations to decide to suspend NCC facility operations. Since August last year, the government has pursued restructuring of petrochemical corporations with the goal of cutting production capacity by about one-quarter.
In August last year, Yeochun NCC's Plant No. 3 was the first to shut down. As part of the Daesan No. 1 Project, Lotte Chemical decided to fully suspend for the next three years operation of its NCC facility at the Daesan plant, which has an annual capacity of 1.1 million tons. Operating rates of NCC facilities of Ulsan petrochemical corporations such as Korea Petrochemical Ind are also reported to have dropped sharply.
A petrochemical industry official said, "There is a lot of talk that naphtha inventories cover only two weeks," and noted, "The concern is not the rise in materials and supplies prices, but that we cannot even procure them, raising fears we will be unable to deliver products to clients."