Japanese Ethylene Plant Plunges to Record Low, Effects of Middle East Conflict Start to Be Felt

JAKARTA - Supply disruptions from the Middle East are starting to hit Japanese chemical plants. The operating rate of the country's ethylene plants fell to 67.3 percent in April, the lowest since comparable data became available in 1996.

According to a Kyodo News report quoted on Saturday, May 30, the decline was triggered by a disruption in the supply of naphtha, an oil-derived raw material used to make ethylene. Ethylene is a basic chemical widely used in industry, including for making detergents, medicines, paints, and various plastic products.

The Japan Petrochemical Industry Association said April's figure was lower than the previous record, 68.8 percent in March. In February, before tensions in the Middle East escalated, the operating rate was still 75.7 percent.

The problem arises when the delivery of oil and petroleum products, including naphtha, is disrupted amid the effective closure of the Strait of Hormuz. The United States and Israel launched an attack on Iran on February 28.

For the Japanese industry, this is a serious blow. So far, Japan has relied on the Middle East for about 80 percent of its naphtha supply. When supply lines are clogged, direct costs rise.

Major chemical manufacturers then seek naphtha from within the country and other regions, including the United States and Africa. The cost is more expensive. The increase in costs also contributes to the retail price of consumer products.

"Companies moving to get naphtha in a panic atmosphere in March, but since mid-April they have been procuring more calmly while monitoring prices," Koshiro Kudo, chairman of the Japan Petrochemical Industry Association and president of Asahi Kasei Corp., said at a news conference.

Kudo expects the operating rate of factories to rise to around 70 percent in May and June.

Kyodo News reported that about 1.35 million kiloliters of naphtha were estimated to be supplied from outside the Middle East in May. This amount is three times the monthly average of 450,000 kiloliters in 2024.

"We can get naphtha from around the world by paying a premium," said Manabu Chikumoto, Vice Chairman of the Japan Petrochemical Industry Association and President of Mitsubishi Chemical Group Corp.

Premiums mean additional costs above the normal price. In a tight supply situation, buyers often have to pay more to get goods.

Japan has 12 plants that thermally break down naphtha to produce chemicals such as ethylene and propylene. Simply put, naphtha is heated at high temperatures to decompose into basic chemicals for various industries.

In April, ethylene production rose 3.6 percent from the previous month to 283,500 tons after one plant undergoing periodic maintenance returned to operation. However, compared to the previous year, the volume was still down 37.1 percent.

The increase in naphtha costs risks pushing up the prices of consumer products that use ethylene-derived chemicals. From chemical plants, the effect can spill over into everyday goods.