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The Middle East conflict is creating shortages of a key component for plastics, threatening to force temporary plant closures and deepening a shakeout of Asia’s petrochemicals industry.
Japan and South Korea, which had already been shutting struggling facilities before the war in Iran, are now exposed to shortages of naphtha, a material derived from crude oil and used to produce plastic goods.
Both countries import roughly two-thirds of their naphtha supply. Of this, about 60 per cent comes from the Gulf for South Korea, while the amount is 70 per cent for Japan, according to Sparta Commodities, an oil information provider.
Analysts said the supply disruption would accelerate consolidation of their industries. Both nations had been closing ageing petrochemical facilities because of chronic overcapacity from China.
“It’s like an iceberg hitting a ship that is already capsizing,” said Jorge Molinero, lead naphtha analyst at Sparta Commodities. “The Iran escalation adds a meaningful layer of stress on top of an already fragile situation.”
Prices of naphtha have jumped by half since last month to $875 a tonne, according to S&P Global Energy, but supply has been difficult to secure after retaliatory attacks from Iran all but shut shipping through the Strait of Hormuz.
Petrochemical facilities across Asia have begun cutting output and temporary closures could follow.
Yeochun NCC, South Korea’s largest single ethylene producer, declared force majeure last week and said it was running at minimum capacity. In the past three days, Lotte Chemical and LG Chem have also warned customers they may be unable to meet their contractual obligations.
Producers yet to declare force majeure are cutting operating rates to about 60 per cent from the 80 to 90 per cent range.
In Japan, Mitsubishi Chemical and Mitsui Chemicals have cut production, while Idemitsu Kosan has warned customers about potential halts at two facilities if shortages persist.
Japan-based analysts at Citi said if market conditions did not improve by the middle of April, “multiple ethylene facilities risk production cuts or shutdowns” and derivative products such as ethylene, propylene and butane would start to get hit.
The two Asian nations have struggled to compete against China, which has built integrated refinery-petrochemical complexes that are far more competitive. They have also been squeezed by higher feedstock and power costs, shrinking home markets and weak currencies.
China has been somewhat shielded from the current crisis due to its domestic crude refining capacity and ability to turn to Russia as an alternative source, which US-aligned countries such as Japan and South Korea have difficulty tapping because of sanctions.
The US, meanwhile, consumes much of its domestically produced naphtha for gasoline blending, leaving it with limited surplus to export.
Even so, analysts expect the US to strengthen its foothold in Asian markets if the conflict carries on, as American petrochemical makers are more commonly fed with ethane derived from natural gas.
Naphtha had low storage availability since it was not a major product for oil refineries, which were likely to prioritise making high-value goods such as jet fuel, diesel and heating oil, said Ajay Parmar, analyst at research group ICIS.
South Korea has two weeks of naphtha inventory, according to its trade ministry, while Citi estimates Japan has 20 days — around the level of stockpiles that petrochemical producers tend to hold.
The two countries were already closing underperforming plants and consolidating, given the importance of petrochemicals in defence and supply chain resilience.
Since August, Seoul has been pushing petrochemical groups to restructure, with the aim of cutting capacity by a quarter.
In January, Mitsubishi Chemical, Mitsui Chemicals and Asahi Kasei agreed to set up a new company to consolidate ethylene production in western Japan.
Lee Duckhwan, professor emeritus at Sogang University in Seoul, said South Korea’s government should explore measures such as deregulation or subsidies to ensure the industry avoided reliance on China.
“Abandoning the petrochemical industry for domestic demand would be disastrous for the Korean economy and national security,” he said.
