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🇰🇷 South Korea /Economy & Trade

South Korea's Naphtha Supply Stabilizes Amidst Supply Chain Diversification

From Hankyoreh · (5m ago) Korean

Translated from Korean, summarized and contextualized by DistantNews.

TLDR

  • South Korea's naphtha supply is expected to stabilize in May, recovering to 80-90% of pre-war levels, thanks to government financial support and diversified import sources.
  • The government is subsidizing 50% of the price difference for imported naphtha, LPG, and condensate, encouraging increased imports.
  • Import routes have shifted significantly from the Middle East to the US and India, reducing reliance on the Strait of Hormuz.

South Korea's petrochemical industry is breathing a sigh of relief as naphtha supply chains show signs of recovery, with expectations of stabilizing by May. The nation's heavy reliance on Middle Eastern sources for this crucial industrial feedstock, often dubbed the 'rice of industry,' had created significant vulnerabilities, particularly in light of recent geopolitical tensions. The government's proactive measures, including a substantial supplementary budget of 677.4 billion won to subsidize import costs, have been instrumental in navigating this challenge.

Considering the continuous introduction of basic oils from China, the naphtha supply in May is expected to recover to 80-90% compared to before the Middle East war.

— Yang Ki-wook, Director of Industrial Trade Security at the Ministry of Trade, Industry and EnergyProjecting the recovery of naphtha supply levels.

The impact of these interventions is already visible in the diversification of import sources. Previously dominated by Middle Eastern countries, South Korea's naphtha imports now see the United States and India as leading suppliers, each accounting for over 23% of the total. This strategic pivot away from a single, volatile region demonstrates a commitment to building a more resilient supply chain. While the government remains cautious about declaring this a permanent structural shift, the immediate effect is a significant reduction in exposure to potential disruptions in the Strait of Hormuz.

The naphtha market is separate from the crude oil market and is very sensitive to price, so it is too early to discuss structural changes.

— Yang Ki-wook, Director of Industrial Trade Security at the Ministry of Trade, Industry and EnergyExpressing caution about the long-term sustainability of the supply chain diversification.

Furthermore, the increased availability of naphtha is enabling domestic petrochemical companies to ramp up production. Several major players, including Yeochun NCC and Korea Petrochemical Ind. Co., have announced plans to increase their naphtha cracking center (NCC) operating rates. This recovery in operational capacity is crucial for meeting domestic demand and maintaining the industry's competitiveness. The government anticipates a recovery in NCC operating rates to around 70% in May, a significant rebound from the low of 55% experienced during the supply crunch. This resurgence is vital for the broader South Korean economy, which relies heavily on the petrochemical sector for a wide range of manufactured goods.

From May, other petrochemical companies are expected to gradually increase their operating rates or restart idled facilities.

— Yang Ki-wook, Director of Industrial Trade Security at the Ministry of Trade, Industry and EnergyForecasting increased production capacity in the petrochemical sector.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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