South Korea Flags Naphtha As Security Item Amid Supply Crunch
South Korea will temporarily designate naphtha as an “economic security item”, allowing affected companies to receive government support amid heightened supply chain risks, according to local media reports.
The government also plans to take measures such as monitoring supply and demand trends, securing alternative import sources, and implementing export restrictions, Deputy Prime Minister and Minister of Finance and Economy Koo Yun-cheol said in an emergency economic ministerial meeting and supply chain stabilization committee on Wednesday.
Additionally, Seoul will expand financial support by KRW 1.5 trillion ($1.0 billion) for companies affected by supply chain disruptions, granting preferential interest rates for companies handling high-risk economic security items, and preparing a supplementary budget to stabilize the economy.
South Korea has long been the world’s largest importer of naphtha, a byproduct of oil refining, which serves as a key feedstock for its massive domestic petrochemical industry. Nearly half of its naphtha supply is sourced from the Middle East.
The price of naphtha has risen sharply in response to the supply shock brought on by the ongoing Iran war. The benchmark CFR Japan open specification naphtha price settled at $1,031.75 per metric ton on Tuesday, nearly double the level before the conflict.
Seoul’s latest move is part of a series of measures taken to address supply gaps stemming from the crisis. It follows a government announcement on Friday that it would restrict naphtha exports and, if necessary, supply naphtha alongside the release of the country’s strategic oil reserves.
Traders and producers have been seeking replacement cargoes around the world, including India, the U.S. and the Red Sea. Still, some naphtha-fed crackers have already borne the brunt of the Middle East upheavals, with feedstock shortages forcing operations to scale back and declare force majeure.
On March 4, Yeochun NCC declared force majeure on all its downstream petrochemical products and said it will operate all its facilities at minimum capacity. Lotte Chemical and its Indonesian and Malaysian subsidiaries issued customer letters in mid-March flagging potential force majeure and supply volume adjustments.
–Reporting by Yiwen Ju, yju@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com