Naphtha crisis: "The more they produce, the more they lose" – Petrochemical industry on high alert [U.S.–Iran War]

International oil prices and Naphtha costs have surged in the wake of United States of America (U.S.) and Israeli airstrikes on the Islamic Republic of Iran, pushing South Korea’s petrochemical industry into an unprecedented crisis. Feedstock prices have now overtaken product prices, creating a reversed margin structure where "the more companies produce, the more they lose." Following Yeochun NCC, Lotte Chemical has also warned of a possible force majeure on supply, raising concerns that a prolonged war could drive the entire industry to the brink of plant shutdowns.
■ Ethylene spread turns negative
According to the Ministry of Trade, Industry and Energy on the 11th, the ethylene spread, a key profitability indicator for the petrochemical sector, has fallen to minus 149 dollars per ton. The ethylene spread is calculated by subtracting the price of Naphtha, the main feedstock, from the price of Ethylene, the basic petrochemical building block often called "the rice of petrochemicals."
Naphtha is now trading at 1,009 dollars per ton, a 66.78% jump from the previous week. Ethylene prices also climbed, reaching 860 dollars per ton, up 31.3% week-on-week. However, because Naphtha rose by more than twice as much, the spread ultimately slipped into negative territory.
Industry officials generally view the breakeven point for the ethylene spread at around 250 dollars per ton. Yet in the first quarter of this year, the spread had already weakened to the 50–80 dollar range per ton, sharply eroding profitability. The war-driven spike in feedstock prices has now pushed the spread firmly into the red.
An industry source noted, "The ethylene spread can vary depending on whether you base it on Naphtha prices or Ethylene purchase prices, but I have never seen numbers at this level before," adding, "As market anxiety grows, Naphtha and Ethylene prices are swinging wildly day by day. We are effectively in a situation we have never experienced before."
Instability in feedstock supply chains is amplifying the crisis. Roughly half of the Naphtha supplied domestically is imported, with the rest produced through local refining processes. About 70% of South Korea’s crude oil imports come from the Middle East, and a large share of that passes through the Strait of Hormuz. Some 54% of imported Naphtha also transits this chokepoint. With recent signs that the Islamic Republic of Iran may be laying naval mines, fears of supply disruptions are mounting further.
■ Government preparing response
South Korean petrochemical companies have already begun lowering plant operating rates due to difficulties in securing Naphtha. After Yeochun NCC, Lotte Chemical has notified major customers of delays and adjustments in fulfilling product deliveries and has signaled the possibility of invoking force majeure. Lotte Chemical, LG Chem, Korea Petrochemical and other major players are cutting utilization rates or bringing forward scheduled maintenance.
Independent Commodity Intelligence Services (ICIS) forecasts that operating rates at domestic naphtha cracking facilities (NCCs) will fall from 80% last month to 69% this month. With Naphtha prices soaring, utilization could drop even further. Industry insiders and experts worry that the current situation may go beyond a cyclical downturn and evolve into a structural crisis for the sector as a whole. Deok-Hwan Lee, emeritus professor of chemistry at Sogang University, commented, "The government appears focused on stabilizing gasoline and diesel prices, while paying relatively little attention to Naphtha supply and demand," and warned, "The petrochemical industry is not just in crisis; it is effectively facing the worst-case scenario."
The government has begun working on measures to stabilize Naphtha supply. Koo Yun-cheol, Deputy Prime Minister and Minister of Finance and Economy, stated at an Emergency Economic Council meeting held at Government Complex Seoul, "We will respond to potential supply disruptions in Naphtha by securing alternative import sources and alternative feedstocks," adding, "We will also swiftly prepare government support measures, including fiscal and financial assistance." A government official, asked about the timing of the announcement, said, "Discussions are still under way with companies and relevant ministries, so we need to watch how things develop."
Within the industry, there is growing concern that if the war in the Middle East drags on, production disruptions could become a reality across South Korea’s entire petrochemical sector.
solidkjy@fnnews.com Reporter Gu Ja-yoon Reporter