South Korea secures 90 percent of its naphtha supply, petrochemical plants increase production

South Korea (South Korea) estimates that the supply of naphtha - the main raw material for the petrochemical industry - for May could return to 90 percent of the pre-war Iranian level.

Yonhap reported on Tuesday, April 28, that South Korea's Ministry of Trade, Industry, and Resources said major petrochemical companies began to increase plant operations as supplies entered.

Yeochun NCC, which had declared force majeure for some products due to a shortage of naphtha, increased its operating rate from 55 percent on April 1 to 65 percent as of Friday.

Korea Petrochemical Ind. Co. also raised its operations from 62 percent to 72 percent in the same period.

The South Korean government also shares the burden of import costs. Earlier this month, the ministry prepared 674.4 billion won, or about US$457 million, to cover up to 50 percent of the difference between pre-war naphtha prices and import prices that rose during April-June.

South Korea has also secured 2.1 million tons of naphtha by the end of the year from four Middle Eastern countries, including Oman and Saudi Arabia. That amount is equivalent to about one month's supply based on last year's needs.

Outside of naphtha, the government uses a crude oil exchange system. South Korean refineries have submitted exchange deals of around 31 million barrels for April and May.

As of Tuesday, the South Korean government had signed a deal to exchange 14 million barrels of crude oil with the company. An additional deal of around 16.5 million barrels is planned to be signed in May.

In this system, the South Korean government lends part of the crude oil from the state's reserves, especially Middle Eastern oil, to refineries. The stock will later be replaced with alternative supplies secured by the company.

A ministry official in South Korea said the temporary system could be extended if the Middle East conflict continued to drag on and companies remained actively involved.

The system was originally scheduled to run for two months, until the end of May. Now Seoul must keep the factory's supply safe, while holding down the rising burden of energy costs.