Middle East War Causes Petrochemical Slowdown in Japan and South Korea
The Middle East war has severely disrupted naphtha supplies through the Strait of Hormuz, forcing petrochemical industries in Japan and South Korea to significantly cut production. Naphtha, vital for ethylene production, has seen prices soar 60 percent, impacting companies like Mitsubishi Chemical and LG Chem. Both nations, heavily reliant on Middle East imports, face widespread industrial knock-on effects. South Korea is restricting exports and seeking Russian alternatives, while China remains largely unaffected due to its refining capacity.
The ongoing Middle East war has profoundly impacted the petrochemical sectors of Japan and South Korea, compelling major production cuts due to the paralysis of the Strait of Hormuz, a critical shipping lane. This conflict has severely disrupted the supply of naphtha, a petroleum distillate essential for producing ethylene, a foundational component for countless plastic goods, from food packaging to PVC. Japan, relying on the Middle East for 74 percent of its naphtha, faces critically low inventories, estimated at just 20 days. Leading firms like Mitsubishi Chemical and Mitsui Chemicals have already reduced operations, with half of Japan's ethylene plants scaling back output, prompting price hikes for derived products such as PVC by Shin-Etsu Chemical.South Korea, another key Asian economy, is similarly affected, with LG Chem considering force majeure declarations. In response, the South Korean government has announced restrictions on naphtha exports and is exploring alternative suppliers, including Russia. The crisis extends beyond these nations, affecting global polyethylene supplies and leading to force majeure notices from producers like Singapore's PCS. This disruption comes at a time when Japan and South Korea were already contending with chronic overcapacity from China and closing aging facilities. China, however, is relatively insulated due to its robust refining capacity and access to Russian naphtha. The soaring naphtha prices, which have increased 60 percent since the war began, underscore the severe economic reverberations across the global petrochemical supply chain.
